(Bloomberg) — Western Digital, with a $900 million investment led by Apollo Global Management, is gaining financial strength during a tough time for the memory industry, where further consolidation is expected. The chip maker’s shares fell 6% in late trading after disappointing earnings forecasts.
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Apollo-managed funds will purchase preferred convertible stock in Western Digital, and Apollo partner Reed Rayman will win a seat on the board, according to a statement Tuesday. Hedge fund Elliott Investment Management is also participating.
Tuesday’s investment portends a merger with Japan’s Kioxia Holdings, according to people familiar with the matter. Those discussions are still active and ongoing, said the people, who asked not to be identified because the information is private. The hard drive business is expected to remain separate, although details are subject to change.
Bloomberg News previously reported that the parties had learned the rough structure for Western Digital to spin off its Flash business and merge with Kioxia to form a publicly traded company in the United States. A Western Digital representative declined to comment on acquisition talks.
Western Digital Chief Executive Officer David Goeckeler said Apollo and Elliott’s perspectives will help facilitate the next phase of Western Digital’s strategic review.
“We look forward to working together to advance our goals of creating value and finalizing the best possible strategic outcome for our shareholders,” Goeckeler said in a statement.
Rayman calls Western Digital “an iconic American business integral to the global digital infrastructure.”
In June, Western Digital announced a review of its strategic options following discussions with activist investor Elliott.
Elliott Managing Partner Jesse Cohn and Senior Portfolio Manager Jason Genrich said they were “encouraged by the progress Western Digital has made in its strategic review.”
industry excess
Western Digital is suffering from an industry glut that is wiping out profits and revenues as consumers buy fewer smartphones and computers. The ability to survive these times has historically depended on the size of a company’s business, and today there are only a handful of flash memory and computer memory manufacturers left.
Samsung Electronics Co., one of the world’s largest electronics and semiconductor manufacturers, dominates the market.
Separately, Western Digital’s projected revenue will drop to $2.6 billion this quarter. That matches the average analyst estimate of $3.1 billion, according to data compiled by Bloomberg.
The stock fell more than 6% in aftermarket trading after the announcement after closing at $43.95 in New York. It’s up 39% this year.
Qatalyst Partners, Lazard Ltd. and JPMorgan Chase & Co. advised Western Digital on this investment.
(Updates to add details of merger talks with Kioxia in third paragraph)
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