Western Digital to get US$900 million investment from Apollo, Elliott

WESTERN Digital is receiving a US$900 million investment led by Apollo Global Management, getting financial firepower at a tough time for the memory industry that could see further consolidation. The chipmaker’s stock fell 6 per cent in late trading on a disappointing revenue forecast.

Funds managed by Apollo are buying convertible preferred stock in Western Digital and Apollo Partner Reed Rayman will get a board seat, according to a statement on Tuesday (Jan 31). Hedge fund Elliott Investment Management is also participating.

Tuesday’s investment is a precursor to a merger with Japan’s Kioxia Holdings, according to people familiar with the matter. Those talks are still active and progressing, the people said, asking not to be identified because the matter is private. The hard-drive business is expected to remain separate but details could still change.

Bloomberg News previously reported that the parties have figured out a rough structure where Western Digital would spin off its flash business and merge it with Kioxia, creating a publicly traded company in the US. A representative for Western Digital declined to comment on deal talks.

Western Digital chief executive officer David Goeckeler said Apollo and Elliott’s perspectives will help facilitate the next stage of Western Digital’s strategic review.

“We look forward to working together in advancing our goal of creating value and finalising the best possible strategic outcome for our shareholders,” Goeckeler said in a statement.

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Rayman called Western Digital an “iconic American business that is critical to global digital infrastructure”.

In June, Western Digital announced a review of strategic alternatives following discussions with activist investor Elliott.

Elliott managing partner Jesse Cohn and senior portfolio manager Jason Genrich said they’re “encouraged by the progress Western Digital has made in its strategic review”.

Industry glut

Western Digital is struggling with an industry glut that’s wiping out profits and revenue as consumers cut purchases of smartphones and computers. Withstanding such periods has historically depended on the scale of companies’ operations and there are now only a handful of manufacturers of flash memory and computer memory left.

Samsung Electronics, one of the world’s largest makers of electronics and semiconductors, dominates the market.

Separately, Western Digital forecast revenue will be as low as US$2.6 billion in the current quarter. That compares with an average analyst estimate of US$3.1 billion, according to data compiled by Bloomberg.

The stock fell more than 6 per cent in after-market trading following the announcement after closing at US$43.95 in New York. It had gained 39 per cent this year.

Qatalyst Partners, Lazard and JPMorgan Chase & Co are advising Western Digital on the investment. BLOOMBERG