Undone Deals: A Plague of the Market Plunge

Samsung's pull-back from SanDisk is the latest of many, in another repercussion of financing pressures and falling stock prices.
Roy Harris and Stephen TaubOctober 22, 2008

The mighty pasting being taken by the world’s stock markets helping cause more and more previously announced acquisitions to come unglued.

In one example this week, Japanese electronics giant Samsung Electronics said it withdrew its proposal to acquire SanDisk Corp. for $5.8 billion, in what would have been an all-cash deal. In another, announced earlier, HLTH Corp. said that its merger agreement with its 84-percent owned subsidiary WebMD Health Corp. was terminated by mutual agreement after being caught in the financial-market turmoil.

The two disintegrated deals are hardly alone, nor will they be the last to crumble. According to a Wall Street Journalreport citing Dealogic results, fully $149.1 billion of announced deals have come apart wince Sept. 1. Dealogic noted that the heaviest M&A activity has reflected purchases by the U.S. and British governments — which it said had hit $76 billion this year, eight times higher than last year’s record amount.

Yoon Woo Lee, vice chairman and CEO of Samsung, said in a letter to SanDisk’s board, “After nearly six months of efforts to pursue a transaction with no meaningful progress, we are withdrawing our proposal to acquire SanDisk.” He added, “I am disappointed that we have been unable to reach an agreement on our proposal. I continue to believe that a combination of our two companies would have created a superior global brand, an unparalleled technology platform and the scale and resources to drive convergence in the marketplace.”

Shares of SanDisk, maker of storage card products, plunged 30 percent on the news.

“From the start of this process SanDisk’s board has remained open to a transaction that recognizes SanDisk’s long-term value and contains the right protections for SanDisk’s shareholders,” SanDisk said in its own statement. “We repeatedly outlined a clear path to hold further discussions, including most recently in our letter on September 15, and Samsung consistently chose to ignore that path and, in fact, never contacted SanDisk regarding their proposal after we delivered our letter. We believe this raises questions about the real motivations behind Samsung’s offer.”

HLTH, a provider of health information services, said the board’s determined that both HLTH, as controlling stockholder of WebMD, and the shareholders of WebMD would benefit from WebMD continuing as a publicly-traded subsidiary with a strong balance sheet, including approximately $340 million in cash and investments and no long-term debt.

Martin J. Wygod, chairman of HLTH and of WebMD, stressed that in the current economic environment, it is important for a growth company like WebMD not to be encumbered by $650 million in long-term debt that would be coming due in 18 to 36 months. “By terminating their merger, HLTH and WebMD will retain financial flexibility and be in an advantageous position to pursue potential acquisition opportunities expected to be available to companies with significant cash resources in this period of financial market uncertainty,” he added.

HLTH also acknowledged that the sale of Porex has been delayed as a result of one of the leading potential buyers having difficulty arranging financing for a purchase because of conditions in the credit markets. HLTH stressed it is continuing its sales process for Porex with other potential buyers. Porex is a developer, manufacturer and distributor of proprietary porous plastic products and components used in healthcare, industrial and consumer applications.

HLTH separately Monday said it planned over the next week to purchase up to 50 million shares of its common stock at $9.20 per share.

However, after the stock plunged more than 14 percent to $7.79 in just two days, HLTH announced Wednesday morning it changed the terms of the buyback offer. Under the revised plan, the company said it intends to offer next week to purchase up to 80 million shares of its stock at $8.80. The number of shares proposed to be purchased represents about 43 percent of HLTH’s currently outstanding common shares. In Wednesday morning trading, the stock was hovering just above $8 a share.

Last week, at least three other expected deals were cancelled: Waste Management’s $6.73 billion bid for Republic Services, United Technologies’ $2.65-billion offer for Diebold Inc., and Vishay Intertechnology Inc.’s $1.7-billion proposal for International Rectifier Corp.