Western Digital and Kioxia have broken off merger talks after Hynix objected.

Hynix was part of the Bain-led consortium which bought 55% of Kioxia in 2018 and gave Hynix convertible bonds which could be converted into 15% of Kioxia’s equity.

Hynix’s CFO Kim Woohyun says Hynix is not agreeing to the merger “in light of the overall impact on the value of the company’s investment” and that Hynix “will make a decision for the sake of all stakeholders, including not only the shareholders but also Kioxia.”

WD’s market cap is $14.8 billion and Kioxia is said to be worth anything between $20 and $28 billion. WD’s shares fell 16% on the news of the breakdown in negotiations.

Various structurings for a merger have been proposed:

Earlier this year, one proposal earlier was that WD would spin off its flash business and merge it with Kioxia, creating a publicly traded company in the US managed by Western Digital.

A later proposal was that WD would own slightly more than 50% of the merged entity but Kioxia execs would run it. Under this proposal, WD-Kioxia would be initially listed on the Nasdaq with a Tokyo listing later on. Bain would receive a special dividend either in cash or shares.

Under the latest proposal, Kioxia and WD’s memory businesses would be folded under a single holding company in which Kioxia would own 63% and WD 37%, based on enterprise value. After a capital adjustment, the final split would be 50.1% for the WD side and 49.9% for Kioxia, said Nikkei sources but Yahoo sources said Kioxia would have a 43% stake with WD having 37% stake.

Earlier this month Kioxia suggested bringing in the Japan state-owned fund Japan Investment Corp to underwrite a merger deal.

Any deal would have to get approval from China’s trade regulator, which might not be forthcoming.

By: DocMemory
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