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Tue, Aug 01, 2006 - Page 10 News List

SanDisk agrees to buy out M-Systems

UPBEAT Analysts said that the deal should expand SanDisk's product lineup, posing a challenge to its larger rival Samsung Electronics in the memory-device market


SanDisk Corp, the world's largest maker of memory cards in consumer electronics, agreed to buy M-Systems Flash Disk Pioneers Ltd for about US$1.3 billion in stock to add more products that store songs in mobile phones.

M-Systems stockholders will receive 0.764 of a SanDisk share for each share they own, Milpitas, California-based SanDisk said yesterday in a statement. Based on SanDisk's price on Sunday, that's about US$36 a share, or 13 percent more than M-Systems' last close.

SanDisk said it would assume about US$75 million of M-System's debt.

The acquisition gives SanDisk and manufacturing partner Toshiba Corp technology that can double the storage capacity on a semiconductor, challenging larger rival Samsung Electronics Co.

Flash memory sales are forecast to grow faster than any major segment of the US$227 billion chip industry, feeding demand for additional memory to store music and pictures.

"SanDisk is getting a stronger lineup of products and patents," said Peter Yu, a Seoul-based semiconductor analyst for BNP Paribas SA. "M-Systems has some good patents."

M-Systems, based in Kfar Saba, Israel, announced on May 11 a new technology that may cut production costs of memory devices by as much as 50 percent by cramming in more storage capacity per chip.

An after-hours call to the office of Lori Barker Padon, a SanDisk spokeswoman, wasn't immediately returned. David Coates, a spokesman for M-Systems, wasn't immediately reachable.

SanDisk president and chief operating officer Sanjay Mehrotra said in a telephone interview that the acquisition would contribute to earnings by the end of the first year.

SanDisk and Tokyo-based Toshiba are building their fourth factory to make NAND flash memory chips next month in Yokkaichi, Mie Prefecture in central Japan. Production will begin by December next year, Toshiba said.

According to estimates from the World Semiconductor Trade Statistics, global sales of NAND flash memory chips are poised to rise 31 percent to US$13.8 billion this year, outpacing the growth of all major segments in the chip industry.

SanDisk's Sansa e200 music players have been "well received," chairman and chief executive officer Eli Harari said last week. The company's second-quarter profit rose to US$95.6 million, or US$0.47 a share, beating the US$0.44 average estimate of analysts surveyed by Thomson Financial.

Shares of SanDisk, up 39 percent in the past year, rose 1.7 percent to US$47.14 on Friday, while those of M-Systems, up 23 percent in the past year, gained 2.3 percent to US$31.79.

Yesterday's transaction, which requires shareholder and regulatory approval, was expected to be completed in the fourth quarter of this year, SanDisk said in the statement.

SanDisk competitors include Lexar Media Inc, which was bought by Micron Technology Inc for US$801 million on June 22, and Suwon, South Korea-based Samsung Electronics, the world's largest memory chipmaker.

"This transaction better positions SanDisk to serve the expanding storage needs of handset makers and mobile network operators," Harari said in the statement. "The combination with M-Systems will be a catalyst in the development of next-generation flash-enabled consumer applications."

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