SK hynix, which indirectly holds a stake of approximately 34% in the Japanese NAND flash manufacturer Kioxia Corporation, has reportedly opposed the management integration of Kioxia and U.S.-based Western Digital (WD).
Japan’s Nikkei newspaper reported on Oct. 18 that “SK hynix of South Korea, which has made an indirect investment in Kioxia Corporation, has shown reluctance toward the management integration discussions between Kioxia Corporation and WD.” Currently, Kioxia Corporation and WD are coordinating plans to separate the NAND flash business and establish Kioxia Holdings to integrate their operations. It is anticipated that Kioxia Corporation will hold 49.5% of the holdings’ shares while WD will hold 50.5%.
According to market research firm TrendForce, as of the last quarter, Kioxia Corporation’s share in the NAND flash market was 19.6%, ranking second worldwide. WD ranked fourth with 14.7%. A simple addition of their market shares totals 34.3%, surpassing not only SK hynix’s 17.8% but also the world leader, Samsung Electronics, with 31.1%.
For the integration of the two companies’ management, the consent of SK hynix, which has an indirect stake in Kioxia Corporation, is required. The stake structure in Kioxia Corporation comprises a Korean-American-Japanese consortium led by Bain Capital holding 56.2%, Toshiba with 30.6%, and the Japanese company Hoya holding 3.2%.
SK hynix, in May 2018, invested 3.9159 trillion won to hold 73.5% of the Bain Capital fund BCPE LP, which in turn holds a 25.9% stake in Kioxia Corporation. Simply translated, SK hynix indirectly holds 19.0% of Kioxia Corporation’s shares. Additionally, SK hynix possesses convertible bonds (CBs) that provide the right to acquire up to an additional 15% of Kioxia Corporation. When combined, the simple stake rate reaches 34%.
Both Kioxia Corporation and WD are pushing forward with plans to list a new joint company. SK hynix can realize investment profits through a sale of its stake. As of the end of June, the value of Kioxia Corporation’s stake amounted to 5.309 trillion won. Despite this, there is speculation that SK hynix opposes the management integration due to concerns about reducing its influence over Kioxia Corporation. Within SK hynix, not only is there a strong call for close business collaboration with Kioxia, but also for a long-term push towards mergers & acquisitions (M&As). If the integration with WD occurs, there’s a significant chance that SK hynix’s strategy could be rendered ineffective.
SK hynix stated its official position by saying, “We have not yet decided to give consent.”