KIOXIA & Western Digital Merger Restart: Bain-SK Hynix Talks

In a recent development, it has been reported by Japan's Kyodo News that the previously halted merger between KIOXIA and Western Digital, enforced in October last year due to opposition from SK Hynix, may be on the verge of resumption. Ongoing negotiations are taking place between Bain Capital, a major shareholder in KIOXIA, and SK Hynix.

Sources reveal that KIOXIA has made discreet adjustments and is actively considering restarting negotiations with Western Digital, which were temporarily put on hold. Additionally, there are indications that KIOXIA is exploring potential collaboration with SK Hynix, with due consideration for antitrust law implications. In the event that the merger between KIOXIA and Western Digital does not proceed, KIOXIA is evaluating the option of pursuing an independent public listing.

In a concerted effort to reignite merger discussions, Bain Capital, the major shareholder of KIOXIA, is engaged in continuous dialogues with SK Hynix. It has been noted that SK Hynix is expressing concerns about a potential weakening of its influence over KIOXIA in the event of a merger with Western Digital, leading to an interest in participating in the merger in some capacity.

As previously reported, both Western Digital and KIOXIA faced sustained losses last year amidst a global economic downturn, soft demand in the NAND Flash memory market, and persistent price declines. Western Digital's strategic response involves spinning off its NAND Flash memory division for a merger with KIOXIA. The envisaged merged entity is anticipated to adopt a dual-board structure, with executives from both flash memory chip manufacturers serving as members. The operational leadership of the new entity is expected to be helmed by KIOXIA's team. The headquarters will be located in Japan, with plans for future listings on the Nasdaq and the Tokyo Stock Exchange. It is noteworthy that Western Digital's hard drive business will remain independent and will not be part of the transaction.

Bain Capital presently holds approximately 56.24% of KIOXIA, while Toshiba maintains a stake of about 40.64%. Earlier speculations regarding the terms of the KIOXIA and Western Digital transaction suggested that post-merger, KIOXIA would contribute 43% to the new company, and Western Digital would contribute 37%, with the remaining 20% ownership retained by current shareholders, including Toshiba. However, subsequent reports suggest a potential adjustment, with Western Digital holding around 50.5% of the holding company, and KIOXIA holding approximately 49.5%.

Data analysis indicates that upon completion of the merger between KIOXIA and Western Digital, the combined entity would hold over 34% of the global NAND Flash market, surpassing Samsung to become the world's largest NAND Flash manufacturer. This would confer significant influence in terms of revenue and market pricing, potentially ameliorating the current operational challenges faced by both companies. The original target for finalizing a merger agreement by the end of October 2023 was hampered by opposition from SK Hynix, leading to the ultimate failure of the merger.