By Rhee So-eui and Marie-France Han
SEOUL (Reuters) - Samsung Electronics Co Ltd, the world's top memory chip maker, withdrew a $5.9 billion unsolicited bid for flash memory card maker SanDisk 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.
SanDisk had rejected Samsung's bid last month saying the offer failed to price in the "intrinsic" value of its intellectual property.
Jim Handy at Objective Analysis said in a note: "Today's announcement should help Samsung push SanDisk's share price lower, making it possible to acquire the company at a better deal."
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.
SanDisk shares
SanDisk's shares have dived 55 percent this year and closed at $14.76 in U.S. trade on Tuesday.
Analysts had said Samsung 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."
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.
VALUATION
SanDisk 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 takeover deals have fallen apart in recent months, as acquirers find it tough to finance acquisitions amid the global credit crisis and target companies stick even more strongly to the belief that their depressed stock prices do not reflect their true worth.
"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.
Analysts said Toshiba, which pioneered NAND flash technology, could lose lost market share if Samsung eventually buys out SanDisk. Toshiba shares dropped 5.1 percent in a weak market.
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.
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 Anshuman Daga)
