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Technology Stocks : WDC/Sandisk Corporation
WDC 163.00-0.4%Nov 7 9:30 AM EST
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To: Art Bechhoefer who wrote (60006)3/16/2016 10:29:34 AM
From: Elroy  Read Replies (2) of 60323
 
My chief concern about WDC shares as an investment is related to the potential adverse impact of some $19 billion of new debt created in order to finance the purchase of SNDK. In the short run, this debt could cause WDC profits to fall, maybe even to the point where WDC would have to cut or eliminate its dividend.

Quick back of the hand analysis time.

$19 billion in new WDC debt. Lets see, suppose a 3% interest rate, and that's $570m per year in new interest expense.

SNDK had non-GAAP operating income over a billion USD last year. SNDK had non-GAAP operating income of $1.8b dollars the year before.

Theoretically, under this merger SNDK's profit contribution to WDC should increase from those numbers.

Given that SNDK profit should be way above the additional interest expense of the $19b in new debt, how do you conclude that

In the short run, this debt could cause WDC profits to fall, maybe even to the point where WDC would have to cut or eliminate its dividend.

The only way that $19b in new debt-related interest expense could cause WDC profits to fall is if SNDK's profits inside of the combined entity are going to plunge by more than 50% compared to the average of the last two years.

You seem to love SNDK. Why assume that it's profit levels will decline by a HUUUUGE amount after WDC acquires it?
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