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Eighteen months ago, Elliott Management declared that Western Digital could be worth $100 per share or more by the end of 2023. To meet that target, the tech company has to more than double its share price in the next two months.
This is not likely. But on Monday, Western Digital announced that it would follow Elliott’s advice and separate its hard disc drive and flash memory segments into listed companies. The decision comes as a long-rumoured tie up with Japan’s Kioxia to create a fortified, East-West NAND memory chip colossus collapsed last week when Western Digital walked away from discussions.
Elliott’s thesis is that Western’s 2016 acquisition of SanDisk for $19bn proved confusing to investors. Today, Western’s total enterprise value is roughly $20bn. With the Kioxia tie-up apparently dead, the question is whether some other transaction is in the works. Otherwise, Western Digital needs some other means to achieve the sum-of-the-parts valuation Elliott cobbled together.
Western Digital’s struggles look stark when compared with the HDD leader, Seagate Technology. Seagate’s enterprise value to trailing annual revenue ratio is approaching 3 times. Western Digital trades at under 2 times. In the past five years, Western Digital shares are down more than 15 per cent while Seagate has rallied more than half.
Elliott has pointed out that by simply applying roughly the Seagate multiple the market to the Western hard disk business, the remaining implied worth of the flash business is only a few billion dollars, too low. Back in 2022, it said that it was willing to invest a billion dollars into the flash segment at as much as a $20bn valuation.
In the end, Elliott and Apollo Global Management teamed up earlier this year to buy $900mn of convertible preferred stock in Western Digital. This pays a juicy 6.25 per cent dividend. It also converts into company stock at just under $48.
Forget $100, this is the threshold Elliott will be focused on.
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