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7/30/2006
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SanDisk Acquires Competitor Msystems For $1.3 Billion

SanDisk, a leader in flash memory subsystems for imaging and audio storage, is acquiring one of its largest solid-state memory competitors, Msystems of Israel, in a stock transaction worth approximately $1.35 billion.

COLORADO SPRINGS, Colo. — SanDisk Corp., a leader in flash memory subsystems for imaging and audio storage, is acquiring one of its largest solid-state memory competitors, Msystems Ltd. of Israel, in a stock transaction worth approximately $1.35 billion.

Both companies have concentrated on NAND flash storage, although Mystems (Kfar Saba) has maintained a focus on USB memory sticks and cellular-phone handset solutions.

With the acquisition, SanDisk (Milpitas, Calif.) also gains a quick entry into the emerging 4-bit-per-cell NAND flash technology market. Msystems' recently-introduced x4 product is a technology designed to enable the utilization of 4-bit/cell NAND flash, which was "previously considered to be a practical and physical impossibility," according to the company.

This deal also represents the latest blockbuster in the flash-memory product arena. The combined companies will compete against Micron Technology Inc. (Boise, Ida.), which recently stunned the market by acquiring flash-memory product rival Lexar Media Inc. for $800 million.

Meanwhile, Msystems carriers some baggage, analysts said. Just last week, Israel-based personal storage company Msystems said it would not comment on recent rumors the company is for sale amid a stock investigation and potential patent problems. The company earlier confirmed there were a "variety of deficiencies and irregularities" in its stock-option practices

In a recent report, analyst Satya Chillara of American Technology Research Inc. (Greenwich, Conn.) said msystems "has recently launched its X4 technology. After reviewing the details, we believe [msystems] will have to address the legal issues surrounding Sandisk's IP."

In a statement, SanDisk chairman Eli Harari said that the acquisition would accelerate its pace of innovation — specifically, bringing SanDisk closer to handset manufacturers and mobile operators.

"Msystems is a leader in flash memory systems addressing mobile, portable and embedded markets and they have a strong team, significant IP and important OEM customers," he said. "In the near term, this transaction better positions SanDisk to serve the expanding storage needs of handset manufacturers and mobile network operators. In the long term, the combination with Msystems will be a catalyst in the development of next generation flash enabled consumer applications."

Msystems must seek Israel court approval, and the agreement also must pass regulatory approval in both the U.S. and Israel. SanDisk expects the deal to close in the fourth calendar quarter, after which Msystems will be wholly-owned subsidiary of SanDisk.

Terms of the deal call for each share of Msystems common stock to be converted into 0.76368 shares of SanDisk stock, representing a 26 percent premium over the average Msystems stock price of the last 30 trading days.

Last year, SanDisk entered the emerging three-dimensional chip space by acquiring Matrix Semiconductor Inc. for $238 million. And recently, more rumors are floating around about Toshiba Corp.'s new NAND flash-memory plant, a 300-mm mega fab that is called Fab 5. Toshiba's fab partner is SanDisk.

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