The proposed merger between Japan’s Kioxia, a NAND flash memory producer, and the American company Western Digital (WD) has been called off. The merger practically required the approval of SK hynix, an indirect investor in Kioxia. However, due to the reluctance shown by SK hynix, the deal didn’t proceed. This development has provided relief not only to SK hynix but also to Samsung Electronics.
On Oct. 27, leading Japanese newspapers Nihon Keizai Shimbun (Nikkei) and Yomiuri Shimbun reported that “negotiations over the merger between Japanese NAND producer Kioxia and American firm Western Digital have been halted.” It has been revealed that Western Digital communicated its decision to discontinue the negotiations to Kioxia after encountering challenges in the discussions.
For Kioxia to merge with Western Digital, approval from indirect investor SK hynix was paramount. Although SK hynix does not hold equity in Kioxia, a contractual clause stipulates that significant decisions, including mergers, require the consent of SK hynix.
Talks about the merger between Kioxia and Western Digital, which commenced in 2021, gathered momentum recently amid a slowdown in semiconductor demand and a weakening NAND market. Western Digital aimed to separate its semiconductor memory business and integrate management by establishing a holding company alongside Kioxia Holdings.
Kioxia was once the memory business division of Toshiba, which was a market leader in semiconductors. As Toshiba fell behind Samsung Electronics and faced management challenges, it decided to divest its memory division. At that time, the U.S.-based private equity firm Bain Capital acquired Kioxia, with SK hynix investing 395 billion yen (approximately 3.6 trillion won) in the Bain Capital fund. If Kioxia went public, SK hynix would have the option to convert its convertible bonds into common shares, securing up to 15% of the voting rights.
From a market share perspective, SK hynix, currently in third place, might have been pushed down if the merger occurred. Although Samsung Electronics leads the NAND market, the combined force of second-placed Kioxia and fourth-placed Western Digital could have posed a significant challenge even to Samsung.