SK Hynix has voiced its objections to the rumored merger between Kioxia Holdings Corp. and Western Digital. The South Korean maker of memory, which holds a stake in Kioxia, believes that the current terms of the proposed merger undervalue its investment. This opposition adds a layer of complexity and uncertainty to the merger discussions, which have been ongoing for some time. Meanwhile, SK Hynix essentially confirmed that the talks are ongoing.
"The company is not agreeing to the deal at this time, in light of the overall impact on the value of the company's investment in Kioxia," said Kim Woo-Hyun, chief financial officer of SK Hynix, at the company's earnings call (via SeekingAlhpa). "Please understand that we cannot disclose the specific reasons or comment on the deal process due to the confidentiality agreements with Bain. But I do wish to make one thing clear, we will be making the decision for the sake of all stakeholders, not only the shareholders but also Kioxia as well."
For now, it looks like the company's disagreement stems from concerns about the valuation of its stake in the merger, and it is currently seeking a resolution that aligns with the interests of all stakeholders involved.
SK Hynix contributed ¥395 billion ($2.628 billion as of 2023) when it participated in the acquisition of Toshiba’s memory chip unit in 2018. From this amount, SK Hynix allocated ¥129 billion ($857.96 million) towards convertible bonds, based on a prior agreement. The remaining ¥266 billion ($1.768 billion) from the Korean company was invested in a fund established by Bain Capital. This arrangement could enable SK Hynix to convert these bonds into an equity interest of up to 15% in the future. Meanwhile, SK Hynix's share in the new company will be negligible.
There is another reason why SK Hynix may be concerned about the new entity. SK Hynix controlled 17.8% of the NAND market in Q2 2023, according to TrendForce. Meanwhile, combined NAND market share of Kioxia and Western Digital in Q2 was 34.3%, outshining Samsung’s 31.1% share significantly and distantly ahead of SK Hynix.
Despite the opposition from SK Hynix, the merger negotiations between Kioxia and Western Digital continue, with the involved parties aiming to reach an agreement soon, reports Bloomberg. The merger, if successful, is seen as a strategic move to enhance the competitive positioning of the two companies in the global memory chip market, allowing them to better compete with industry giants. The companies are hopeful to finalize the deal by the end of October, marking a significant milestone in the memory chip industry.
