The merger discussions between Western Digital and Kioxia Holdings have been conclusively terminated, Nikkei reports. Western Digital notified Kioxia about scrapping the possible transaction citing the failure to obtain approval from SK Hynix, a significant indirect shareholder of Kioxia, and disagreements over merger terms with Bain Capital, Kioxia's main shareholder.
Western Digital and Kioxia, holding the fourth and second positions in the global NAND flash memory market, respectively, planned to consolidate their NAND operations under one roof to create the world's largest maker of NAND memory and potentially enhance their competitive standing and profitability. The envisioned merger was seen as a strategic move to rival Samsung Electronics' market dominance by leveraging the companies' combined resources and capabilities as well as eliminating competition between the companies that co-own production facilities and jointly develop NAND flash memory.
However, the merger faced substantial opposition from SK Hynix, the world's third largest NAND supplier with a 17.8% market share. Having invested around $2.667 billion (at current rates) in a consortium led by Bain Capital that previously acquired Kioxia in 2018, SK Hynix expressed concerns that the proposed merger would adversely impact its market position and future collaboration opportunities with Kioxia. This opposition proved to be a pivotal obstacle, preventing the realization of the merger.
"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 SeekingAlpha). "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."
Despite the discontinuation of merger talks, Western Digital and Kioxia will continue to jointly operate fabs and develop NAND flash memory and next-generation production nodes.
