Western Digital: Citi Ups ‘Synergy’ Estimates in Advance of SanDisk Vote
Tiernan Ray
March 14, 2016, 10:44 A.M. ET
blogs.barrons.com
Shares of hard disk drive maker Western Digital ( WDC) are down $1.3, or 2.5%, at $48.65, as the company heads toward a vote by shareholders tomorrow on its proposed acquisition of flash-memory device maker SanDisk ( SNDK).
Shares of SanDisk are down 15 cents at $76.55, just below the $79 price target.
Although some had worried last month that the deal was in trouble, because of the withdrawal of a Chinese equity investor from a separate deal with Western, confidence now is quite high that Western will win approval tomorrow.
For example, Citigroup’s Stanley Kovler cut his rating this morning on SanDisk to Neutral from Buy given the small spread between the price and the takeout.
Kovler expects the company will, indeed, get approval:
We continue to believe that by and large shareholders of WDC and SNDK will in fact approve the merger, despite some minor opposition, given the accretive nature of the deal, synergies that exist in future proofing WDC’s business, shareholder overlap, and most recently, endorsements of the deal by ISS and Glass-Lewis, as a testament to the support for this deal from proxy-voting shareholders that should aid in approval. Lastly, options market activity around the March 15 deal closing reflects mostly indications of bullish positions on the closure of the deal as we observed limited put buying in Sandisk shares, for example.
Kovler also raised his expectation for the combined profit of the two companies to $610 for this year from a prior $5.66 estimate, given what he sees as higher “synergies” they can achieve.
Kovler offers the following back-of-the-envelope math on what the two companies can achieve (click on the image to see it larger):
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