SanDisk Getting Thrown Out With the Bath Water

SanDisk Corp. (SNDK) shares closed slightly lower at $18.03, but are off 18% since last Thursday’s intra-day high of $21.82 – and in fact, it was even worse yesterday when the flash memory maker hit a low of $16.02. The situation is worth noting because the stock has nearly given up all the gains it has seen since a $5.8 billion Samsung bid was made public on Sep. 16 and especially since more details have come out supporting a higher valuation of SanDisk in recent days.

The Wall Street Journal did some great reporting this weekend, getting their hands on previously undisclosed particulars of an arbitration ruling around SanDisk’s patents, specifically an invention known as X4 that possibly “could double the capacity, lower the cost and potentially extend the useful life of the widely used variety of flash memory known as NAND.” Arbitrators ruled in the spring that SanDisk was within its right to cancel a contract with Samsung that gave the company rights to its technology and that a loss would give SanDisk “leverage to press for additional royalties on X4 technology that could potentially cost Samsung billions of dollars.” In turn, it would give SanDisk leverage in its negotiations with Samsung to increase its offer.

Therefore, from a trader perspective, the decline makes for a tempting entry point with the takeover catalyst in mind because it’s clear that with the volatility to the downside in this market, SanDisk is simply getting thrown out with the bath water.