Samsung withdraws offer to buy SanDisk

Updated at 11:40 p.m. with SanDisk response to Samsung letter.

Samsung on Tuesday withdrew its $5.85 billion bid for SanDisk, citing an increasing "risk profile."

This follows a new manufacturing agreement between SanDisk and Toshiba disclosed Monday and a stiff rejection by SanDisk last month of the Samsung offer.

"After nearly six months of efforts to pursue a transaction with no meaningful progress, we are withdrawing our proposal to acquire SanDisk," Yoon Woo Lee, vice chairman and CEO at Samsung Electronics, said in a letter that Samsung released Wednesday in Seoul.

"I am disappointed that we have been unable to reach an agreement on our proposal. I continue to believe that a combination of our two companies would have created a superior global brand, an unparalleled technology platform and the scale and resources to drive convergence in the marketplace," he said. "Had we been able to execute on our proposal, your shareholders would have received full, fair and certain value for their shares."

The latter point in the letter was a bone of contention for SanDisk. SanDisk CEO Eli Harari reiterated Monday that the offer of $26-per-share was far from adequate.

"Samsung significantly undervalues (SanDisk) in light of the value of our IP (Intellectual Property) to Samsung," Harari said. "Samsung stands to gain enormous value from owning our patents and our know-how."

Samsung, in an apparent response to this, said: "We have obligations to our own shareholders...(that) requires that we squarely face the growing uncertainties in your business, which may continue to deteriorate in this difficult economic environment and further impact your standalone value."

The letter continues, citing the increased risk of a SanDisk buyout. "Your recently announced third quarter results serve only to illustrate this risk. Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung. As a result of these developments, we are no longer interested in acquiring SanDisk at $26/share."

SanDisk's Harari did say Monday, however, that he was still open to an offer "at the right price, (with) the right process, and the right protections for SanDisk's shareholders."

Update: SanDisk issued the following statement Tuesday night:
"From the start of this process SanDisk's Board has remained open to a transaction that recognizes SanDisk's long-term value and contains the right protections for SanDisk's shareholders. We repeatedly outlined a clear path to hold further discussions, including most recently in our letter on September 15, and Samsung consistently chose to ignore that path and, in fact, never contacted SanDisk regarding their proposal after we delivered our letter. We believe this raises questions about the real motivations behind Samsung's offer."