Western Digital shares jump over 10% on merger talks with Kioxia

Western Digital Corporation (NASDAQ: WDC) shares jumped over 10% on Wednesday after a WSJ report said it was exploring a potential merger with Kioxia Holdings.

The all-stock deal could finalise in upcoming weeks

The all-stock deal with the Japanese multinational that could finalise in the upcoming weeks is likely to be valued at more than $20 billion. A Western Digital spokesperson refrained from commenting on the news at this stage.

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The Wall Street Journal had previously reported that chipmaker Micron Technology was also interested in striking a deal with Kioxia Holdings. The news comes more than a week after Morgan Stanley downgraded Micron to ‘equal weight’ and cut its price target to $75.

The report this morning cited people familiar with the matter as it speculated WD’s CEO David Goeckeler will continue to lead the combined company. Earlier this month, Western Digital reported market-beating results for its fiscal fourth quarter and raised its guidance for the future.

WD is now valued at $20 billion with a price to earnings ratio of 24.58.

The alternative for Kioxia is an IPO

Kioxia Holdings was set to list on the Tokyo Stock Exchange last year, which could have been Japan’s largest IPO in 2020. Following trade tensions between the United States and China, however, it withdrew from the plan on fears that it’ll be “cut off from key customers”.

According to the WSJ report, Kioxia could still opt for an IPO if it doesn’t reach an agreement with Western Digital. Weekly financial magazine Diamond also said in June that the world’s 2^nd largest manufacturer of flash memory chips could go public in September.

Kioxia was originally a part of Toshiba, which sold it in 2018 to Bain Capital (U.S. private equity firm) for $18 billion. The Japanese multinational conglomerate, however, still has a 40.6% ownership stake in the flash memory company.