Western Digital To Split Into Two After Walking Away From Kioxa Merger

Memory maker Western Digital said on Monday it would split itself into two companies focusing on hard drives and flash memory, after it walked away from long-running merger talks with Japan’s Kioxa late last week.

“Given current constraints, it has become clearer to the Board in recent weeks that delivering a stand-alone separation is the right next step in the evolution of Western Digital and puts the company in the best position to unlock value for our shareholders,” said chief executive David Goeckeler.

The separation is planned to be structured in a tax-free manner and is scheduled for the second half of next year, the company said.

The firm’s shares surged in early trading on the news, bringing it near its price last week before reports that talks with Kioxa had broken down caused it to drop by as much as 16 percent on Thursday.

NAND competition

Western Digital entered into merger talks with Kioxa in 2021, following Kioxa’s spin-off from former parent company Toshiba in 2017 in the biggest ever private equity-led deal in Japan.

Kioxa had explored either an IPO or a merger with Western Digital but shelved flotation plans in 2020 due to the Covid-19 pandemic and uncertainties created by increasing tensions between the US and China.

Reports said the merger talks finally broke down due to the opposition of Kioxa investor SK Hynix, which is the third-biggest producer of NAND flash memory and would have seen its position threatened by the merger.

Together the two firms would have controlled about one-third of the NAND flash market, roughly on par with market leader Samsung Electronics.

Semiconductor glut

Another factor in talks breaking down was reportedly that some investors in the Kioxa consortium had expressed doubts that the combined firm would `be strong enough to take on Samsung.

Western Digital launched a review into splitting the company last year after activist investor Elliott Management, which has a $1 billion (£820m) stake, pushed it to make the move.

Kioxa and Western Digital have both been struggling with a global semiconductor glut and weak demand for flash memory.

The governments of Japan and the US had reportedly been backing the merger behind the scenes as a way of strengthening semiconductor supply chain cooperation, which the countries have been pursuing as a way of countering the influence of China.