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Bain Capital once again approached SK Hynix, Western Digital and Kai Xia merger is unlikely

Bain Capital once again approached SK Hynix, Western Digital and Kai Xia merger is unlikely

January 30 , 2024 0

Whether the merger of Kaixia and Western Digital can improve its market share is also very uncertain, after all, memory semiconductors have been highly monopolized, and their prices are still affected by market factors. This makes consolidation less necessary. Therefore, some industry analysts believe that the possibility of Kaoxia and Western Data merger is very small.

Since 2021, the merger of Western Digital and Kaixia has been delayed, and even reached an impasse in October 2023 due to SK Hynix's opposition. Bain Capital is in talks with SK Hynix to seek to restart merger talks between memory chip maker Western Digital and Japanese semiconductor company Kaixia, according to people familiar with the matter.
Kaixia used to be the memory business unit of Toshiba, which is the semiconductor market leader. Toshiba decided to spin off the memory unit as it lags behind Samsung Electronics and faces management challenges. Kaixia, formerly known as Toshiba Storage Shares, was acquired by a consortium formed by Bain Capital for $18 billion in 2018. In October 2019, "Toshiba Storage Company" officially changed its name to Kai Xia.
At that time, the U.S. private equity firm Bain Capital acquired Kaixia, and SK Hynix invested 395 billion yen (about 3.6 trillion won) in Bain Capital Fund. If Kaixia goes public, SK Hynix has the option to convert its convertible bonds into common stock, giving it up to 15 percent of the voting rights.
Therefore, for the merger between Kaixia and Western Digital, the approval of indirect investor SK Hynix is crucial. Although SK Hynix does not directly hold an equity stake in Kaixia, the terms of the contract stipulate that major decisions, including the merger, require SK Hynix's consent.
In 2021, Kaixia and Western Digital had merger talks, and it was reported that the deal could exceed $20 billion, but due to a series of issues such as valuation differences, negotiations stalled.
Due to slowing semiconductor demand and a weak NAND market, the two companies resumed merger talks in early 2023. Western Digital hopes to separate its semiconductor memory business and integrate management by forming a holding company with Kaixia Holdings.
Kaixia is a leader in NAND flash and SSD solutions, while Western Digital is highly competitive in HDD. The combination of the two companies will create a comprehensive portfolio that has the potential to reshape the storage industry.
However, the two companies are competitors of SK Hynix, and the merger is naturally unfavorable to the future development of SK Hynix. Data show that in the NAND Flash market, SK Hynix is the world's second largest factory after Samsung, and the world's third largest factory Kaoxia and the fourth largest factory Western Digital merger, the scale will be directly forced Samsung, SK Hynix's market dominance will be threatened.
Therefore, in October 2023, SK Hynix objected to the potential merger of Kaixia and Western Digital, while also stating that "considering the impact on the value of our investment assets, we do not agree to the merger at this time, but we will make a decision for all stakeholders, including Kaixia and shareholders."
Although SK Hynix is currently the biggest obstacle to the merger of Kaixia and Western Data, in fact, the importance of the semiconductor industry has recently become prominent, especially the memory semiconductor industry has become a pillar industry in South Korea, and the restructuring of the two companies still needs to be approved by the South Korean, United States and Japanese governments.
But in fact, the Japanese government has previously rejected the move of the US-Japan consortium to buy Kai Xia. And South Korea naturally does not want a strong competitor that threatens its mainstay industry of memory semiconductors.
In addition, whether the merger of Kaixia and Western Digital can improve its market share is also very uncertain, after all, memory semiconductors have been highly monopolized, and its price is still affected by market factors. This makes consolidation less necessary.
Therefore, some industry analysts believe that the possibility of Kaoxia and Western Data merger is very small.