Investors’ reactions to Elliott Management taking a stake in Western Digital and Elliott’s public letter advising a separation of WD’s Flash and disk drive businesses have prompted its board to examine this and other strategic options for WD.
WD has two divisions: one making hard disk drives (HDD) and one making NAND chips in a joint venture with Kioxia and then building SSDs using these chips. Activist investor Elliott says WD’s share price is lower than it should be because WD can’t effectively manage these two divisions. If they were divided into two separate publicly-quoted businesses then their combined share price would be much higher than WD’s current stock price.
An WD announcement says the board is setting up an executive committee, chaired by CEO David Goeckeler, to examine and review strategic alternatives for WD to see which is best for long-term shareholder value. It will oversee an “assessment process and fully evaluate a comprehensive range of alternatives, including options for separating its … Flash and HDD franchises.”
WD’s release mentions having constructive dialogues with Elliott and other shareholders. A statement by Goeckeler explained: “The Board is aligned in the belief that maximizing value creation warrants a comprehensive assessment of strategic alternatives focused on structural options for the company’s Flash and HDD businesses. Through this process, we are actively engaging in a broad range of strategic and financial alternatives that will help further optimize the value of Western Digital, including Elliott’s offer to invest incremental equity capital in our Flash Business. We look forward to continuing our constructive dialogue with Elliott as this process unfolds.”
An Elliott statement, attributed to Managing Partner Jesse Cohn and Senior Portfolio Manager Jason Genrich, said: “We’re encouraged by the positive direction of our discussions so far, and by Western Digital’s openness to considering a full separation of its Flash business. We are pleased that Western Digital’s Board is conducting this review, and Elliott is prepared to provide strategic resources and additional capital to help the company realize the full value of both of its businesses.”
WD and Elliott have signed a nondisclosure agreement, which implies that Elliott is getting a closer look at WD’s financial situation. The two sides have named legal and financial advisors – a further sign that a separation between WD’s two businesses is actually on the table.
We think that WD partners and customers will likely have not much preference whether WD keeps the two divisions together or separates them from a product and technology perspective. The HDD OptiNAND technology could still be used if HDD was a separate business from flash through a partnering deal.
Many may well view Elliott as a pirate-like financial raider only concerned with making a large profit from its own holding in WD with no long-term interest in the firm’s fortunes. Such financial shenanigans can strike people as reprehensible. Actual WD stockholders may well take a different view, encouraged by Elliott-caused restructuring at Commvault. WD’s board thinks the number of them is enough to justify responding to Elliott as it has.