SK Hynix Opposition Threatens KIOXIA-WD Merger

In accorda In a recent report from Nikkei News, it has come to light that the merger negotiations between KIOXIA and Western Digital (WD) may face a significant roadblock. Despite both companies' intentions to finalize a merger agreement this month, opposition from SK Hynix, an indirect shareholder in KIOXIA, has led to a potential impasse. Interestingly, SK Hynix is currently exploring the possibility of partnering with SoftBank for investment in KIOXIA.

KIOXIA, which was previously known as Toshiba Memory, was divested from Toshiba's memory business in 2018 and acquired by a consortium led by Bain Capital, with SK Hynix as one of its members. As per the regulatory framework, Bain Capital, the largest shareholder, is required to secure the consent of investors such as SK Hynix in order to advance the merger proceedings.

As previously reported, KIOXIA and Western Digital are actively considering the establishment of a new entity to consolidate semiconductor production and operational activities. The ongoing discussions under KIOXIA's leadership encompass various intricate details, including the allocation of investments. Notably, KIOXIA plans to invest 43% in the merged entity, while Western Digital intends to contribute 37%. The remaining 20% of ownership will be retained by existing shareholders, including Toshiba. Furthermore, there are intentions for the merged entity to pursue an initial public offering in the future.

To facilitate the merger and bolster their operational capabilities, KIOXIA is in need of substantial funds for immediate working capital requirements and refinancing of existing debt. Consequently, the company is actively seeking a substantial loan of 2 trillion Japanese yen from prominent financial institutions, including Sumitomo Mitsui Bank and the Japan Development Bank. However, it is imperative to acknowledge that these financial arrangements are subject to ongoing adjustments due to SK Hynix's opposition, given its indirect holdings in KIOXIA.

In terms of market dynamics, SK Hynix currently ranks as the second-largest global manufacturer in the NAND Flash market, following the industry giant Samsung. Notably, a potential merger between KIOXIA, the third-largest manufacturer, and Western Digital, the fourth-largest, could lead to a consolidated entity that closely rivals Samsung in terms of market share. This development could potentially create a noticeable gap between SK Hynix, which holds the third position, and the merged entity, thereby intensifying SK Hynix's concerns and strategic planning in response to the evolving competitive landscape.