By Rhee So-eui and Marie-France Han
SEOUL (Reuters) - Samsung Electronics Co Ltd, the world's top memory chip maker, dropped a $5.9 billion unsolicited bid for flash memory card maker SANDISK (SNDK.NQ)Corp, citing the U.S. company's deepening losses and uncertain outlook.
Makers of memory chips are bracing for another round of heavy quarterly losses as a downturn in the industry shows no signs of letting up.
Markets had been doubtful of a deal between Samsung <005930.KS> and SanDisk
"Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung," Samsung CEO Lee Yoon-woo wrote to SanDisk management in a letter disclosed by Samsung on Wednesday.
"As a result of these developments, we are no longer interested in acquiring SanDisk at $26/share."
SanDisk said its board had remained open to a deal that "recognizes SanDisk's long-term value" but added Samsung had never contacted it after an exchange of letters in September.
Buying SanDisk would have given Samsung advanced technology and a tighter grip on its market dominance as smaller rival Toshiba Corp <6502.T> is challenging its position.
Analysts had said Samsung, fed up with SanDisk's unwillingness to negotiate at the current offer price, might withdraw its bid.
"Samsung probably has decided that as the memory chip market continues to weaken, the kind of price SanDisk was asking wasn't what they were willing to go along with," said Kim Young-june, an analyst at KTB Investment.
"The fact that the macroeconomic environment continues to worsen and that the South Korean government has warned against big overseas M&A deals also probably weighed."
Shares in Samsung, South Korea's biggest company with a market value of $56 billion, were down 0.96 percent at 514,000 won by 0337 GMT. The stock outperformed a 2.4 percent fall in the broader market <.KS11>.
SanDisk's shares have dived 55 percent this year and closed at $14.76 on Tuesday.
To some analysts, Samsung's wording hinted it had not abandoned its pursuit of SanDisk altogether.
"This doesn't necessarily mean Samsung is giving up SanDisk for good," said Song Myung-sup, analyst at HI Investment & Securities. "It is stepping back for now, but can try again at a cheaper price later."
VALUATION
SanDisk, which rejected Samsung's bid last month, posted a wider-than-expected quarterly loss on Monday and said it would sell some equipment to partner Toshiba in a bid to bolster its finances.
Several hostile deals have fallen apart in recent months, as acquirers find it tough to finance acquisitions and target companies stick even more strongly to the belief their depressed stock prices do not reflect their true worth.
SanDisk had previously said Samsung's offer failed to recognize the "intrinsic" value of SanDisk's intellectual property.
"The Toshiba deal added to the difficulties in acquiring SanDisk," said Won Seo, analyst at NH Investment & Securities, referring to the Japanese flash memory maker's decision to buy $1 billion worth of equipment from SanDisk.
Samsung said it would consider "joint ventures or alliances" at home and abroad to foster growth.
"We will continue to evaluate all options available, including strategic alliance and business combinations and other initiatives, that serve the interest of company shareholders," said James Chung, a Samsung spokesman.
Betsy Van Hees, a semiconductor analyst at Caris & Co said: "Now that this (offer) has been removed, the stock will trade on fundamentals, and the fundamentals are deteriorating."
Samsung had hired JPMorgan Chase & Co
($1=1348.9 Won)
(Additional reporting by Anupreeta Das in SAN FRANCISCO and Park Jung-youn in SEOUL; Editing by Jonathan Hopfner and Anshhuman Daga)
