(Bloomberg) — Western Digital Corp. has announced a review of “strategic alternatives” following discussions with activist investor Elliott Investment Management and other shareholders, the company said in a statement Tuesday, a plan that could result in the separation of its two businesses.
The Wall Street Journal earlier reported that the company is nearing a deal with Elliott, citing people familiar with the matter.
Western Digital is one of the world’s largest makers of a type of chips, flash memory, that provide storage in everything from smartphones to supercomputers. Those chips come from a partnership with Japan’s Kioxia Holding’s Corp. The technology is slowly taking over the role of data storage in electronics from Western Digital’s other main offering, hard disk drives.
“The Board is aligned in the belief that maximizing value creation warrants a comprehensive assessment of strategic alternatives focused on structural options for the company’s Flash and HDD businesses,” Western Digital Chief Executive Officer David Goeckeler said in a statement.
Elliott endorsed the announcement and said it’s willing to invest in a plan that will increase the value of the company’s two units.
“We’re encouraged by the positive direction of our discussions so far, and by Western Digital’s openness to considering a full separation of its Flash business,” Elliott said in the joint statement. “We are pleased that Western Digital’s Board is conducting this review, and Elliott is prepared to provide strategic resources and additional capital to help the company realize the full value of both of its businesses.”
In May, Elliott, which manages funds that have about a $1 billion investment in Western Digital, sent a letter to the chipmaker’s board calling on it to conduct a full strategic review of the value that could be created by separating the businesses.
At the time, Elliott said Western Digital has underperformed — operationally, financially and strategically — as a result of the challenges of running both businesses as part of the same company. In the letter, Elliott argued that a separation of the flash business would allow both businesses to be more successful and create significant value, which could send Western Digital’s stock above $100 a share by the end of 2023.
According to the agreement between Western Digital and Elliott, the hedge fund has agreed to certain standstill restrictions until the chipmaker’s annual stockholder meeting in 2022. If the review doesn’t result in a transaction by that time, Elliott has the right to appoint one director of its choosing and both sides will appoint one director that they mutually agree upon, according to a filing with the US Securities and Exchange Commission on Wednesday. A strategic transaction could include a sale of all or parts of the company, or a sale, spin-off or carve-out of its two business segments. It may also include a merger or acquisition of Kioxia, according to the filing.
(Updates with terms of agreement in final paragraph.)
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