SanDisk in deal to buy Msystems

NEW YORK: Sandisk, a maker of flash memory used in cell phones and digital cameras, said it would buy Israel-based Msystems for $1.6bn in stock. SanDisk, based in Milpitas, California, said under the deal each share of Msystems would be converted into 0.76368 of SanDisk common stock. It said this was a 26% premium over the average closing price of Msystems’ shares for the last 30 trading days, and that the deal valued Msystems at $36 a share.

Both companies were founded in the late 1980s, and the deal is a further sign of consolidation in the sector. In June, Micron Technology completed an $850m purchase of memory-card maker Lexar Media Inc, which helped it expand beyond its core personal computer business.

SanDisk’s co-founder, president and chief operating officer, Sanjay Mehrotra, said the deal valued Msystems at $1.55bn based on Msystems having a total of 43m shares.“Strategically, it’s a great deal,” he said. “We both have complimentary strengths in our products, customers, channels and technology.”

The deal is subject to Israeli court approval, regulatory approval and Msystems shareholder approval. It is expected to close in the fourth quarter. Mehrotra said Msystems would continue to be based in Israel and there were no plans to move it to the US.

“This acquisition, I look at as a once in a lifetime acquisition,” he added. “This is really quite a unique combination, and such complimentary strengths frankly are very hard to come about.”

SanDisk said Msystems’ 43m share figure was the fully-diluted share count, including shares outstanding as well as in-the-money shares from options and convertible debt.

SanDisk reported a better-than-expected 36% rise in quarterly profit last week. Msystems, which recently changed its name from M-Systems Flash Disk Pioneers, has seen its shares hit by an options grant probe.

On June 1, it said it had launched an internal investigation into prior stock option grants “on its own initiative,” and at the same time postponed an 8.7m share stock offering.

On July 17, Msystems said it restated results for 1999 through ’05, and intended to revise its first-quarter results to reflect charges related to the company’s granting of stock options during 1999 to ’03.

The deal is subject to Israeli court approval, regulatory approval and Msystems shareholder approval. It is expected to close in the fourth quarter.