Western Digital in advanced talks to merge with Kioxia in more than $ 20 billion deal

Western Digital Corp. is in advanced talks to merge with Japan’s Kioxia Holdings Corp., people familiar with the matter say, in a deal that could be valued at more than $ 20 billion and further revamp the global chip industry.

Long-standing talks between the companies have intensified in recent weeks and they could come to an agreement on a deal as early as mid-September, the people said. Western Digital would pay for the deal with the shares and the combined company would likely be headed by its chief executive, David Goeckeler, the people said.

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There can be no assurance that Western Digital, which had a market value of around $ 19 billion as of Wednesday afternoon, will seal a deal, and Kioxia could still go with an initial public offering it had planned or some other combination.

The Wall Street Journal reported in March that Western Digital and Micron Technology Inc. are examining potential deals with Kioxia, which makes NAND flash memory chips used in smartphones, computer servers and other devices. Micron’s interest has since cooled and Kioxia has focused on talks with Western Digital, which already has strong ties to the Japanese company.

Any deal would require the blessing of the Japanese government, given the importance of Kioxia there and the political sensitivities of transferring ownership of this key technology. Washington would also likely play a role, but a deal could come with a push from the United States to boost its chip-making capabilities and increase its competitiveness with China.

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Perhaps the biggest regulatory hurdle would be China, which has been increasingly aggressive in its antitrust enforcement, helping to derail potential deals, including Qualcomm Inc.’s $ 44 billion purchase plan. of the Dutch chipmaker NXP Semiconductors NV in 2018.

There has been an explosion of acquisition activity among chipmakers, with the industry representing many of the biggest deals in recent years. These include the approximately $ 35 billion purchase of Xilinx Inc. by Advanced Micro Devices Inc., the approximately $ 40 billion buyout by Nvidia Corp. of SoftBank Group Corp., backed by Arm Holdings and the $ 20 billion acquisition of Maxim Integrated Products by Analog Devices Inc. Inc.

As a sign of how difficult it is to secure such deals to the finish line, Nvidia said last week that approval of its planned Arms purchase has only progressed slowly. UK regulators are assessing whether to agree to a deal that has yet to be approved by other governments as well. China has just approved Analog’s purchase of Maxim, more than a year after the deal was signed.

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Intel Corp., meanwhile, has made it clear that it is interested in acquisitions and has explored buying GlobalFoundries Inc. The chip production company, owned by an investment arm of the Abu Dhabi government. , is considering an IPO and has yet to be receptive.

(Intel agreed last year to sell most of its memory chip business to South Korean SK Hynix Inc.)

Demand for memory chips has been high, supported by the launch of new smartphones, 5G expansion, and demand for PCs and servers. Samsung Electronics Co., the world’s largest memory chip maker, said last month that strong demand helped offset weak smartphone shipments. Reflecting demand, flash memory prices have skyrocketed in recent months.

This has helped Kioxia’s valuation since it pulled out of an IPO slated for last fall, citing the coronavirus pandemic and market volatility. He then expected a valuation of around $ 16 billion.

Western Digital, which manufactures hard drives, SSDs, and NAND chips, has a joint venture with Kioxia for manufacturing and research and development that was slated to expire from 2027. This deal appears to have given Western Digital an ahead of Micron, which has a market value of $ 83 billion and could have more easily achieved a full takeover.

Their existing links could help make a WD-Kioxia combination more acceptable to regulators.

Western Digital shares rallied on news it was exploring a deal with Kioxia, closing on Wednesday 7.8% at $ 65.50 after the Journal report on the talks. This could indicate that shareholders are supportive despite the big bite it would be.

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Kioxia, formerly a member of Toshiba Corp. and known as Toshiba Memory, was purchased in 2018 by a group led by private equity firm Bain Capital which included Apple Inc., Dell Technologies Inc., Kingston Technology Co. and Seagate Technology PLC, for approximately 18 billions of dollars. Toshiba retained a 40% stake in the company, which was renamed Kioxia the following year.

Write to Cara Lombardo at [email protected] and Dana Cimluca at [email protected]