SanDisk widens memory reach with Msystems deal

July 31, 2006 – In the latest big move to consolidate power in the memory sector, flash memory giant SanDisk Corp., Milpitas, CA, has agreed to acquire Msystems Ltd., Kfar Saba, Israel, in an all-stock deal valued at up to $1.55 billion, including stock options and convertible debt.

In the near term, the merger strengthens SanDisk’s position in handsets and mobile networks, according to Eli Harari, chairman and CEO of SanDisk, while longer-term the combination will help spark development of next-generation flash-enabled consumer applications. “This strategic acquisition will give us the critical mass and complementary products, customers, channels, technology and manufacturing base to take our shared vision to the next level,” stated Harari, adding that the NAND flash market is still in its early stages and is “largely untapped.”

For Msystems, the deal gives it access to SanDisk’s fab capacity, which is busily expanding with partner Toshiba — through their JV, the two companies are planning to bring online three 300mm, 100,000 wafers/month capacity fabs in the next two years. “SanDisk’s extensive silicon expertise will prove itself as a strong catalyst to productizing our revolutionary x4 technology as well as other future innovations,” added Dov Moran, president and CEO of Msystems.

Under terms of the deal, each Msystems share will be converted into 0.76368 of SanDisk common stock, representing a 26% premium over the average closing price of Msystems’ shares for the last 30 days. The transaction, pending approval from shareholders, regulators, and the Israeli courts, is expected to close in 4Q06.

The deal represents the latest big consolidation move in the memory sector. Earlier this year SanDisk closed its $250 million cash-and-stock acquisition of Matrix Semiconductor Inc., expanding its technology portfolio to include 3D IC technology, which will be used with its thumbnail-sized Gruvi memory cards. Last month Micron Technology Inc. closed its $850 million purchase of memory-card maker Lexar Media Inc.

Msystems earlier this month announced it would restate financial results due to improper calculation of option grants, and would postpone a public offering of 8.7 million shares (worth roughly $294 million). The result was a reduction of net income by a total of $18.8 million from 1999-2005, including nearly $8 million restated from 2004-2005, and approximately $1.4 million in 1Q06.

In mid-May, Msystems announced its x4 technology, designed to enable utilization of 4-bit/cell NAND flash, with mass production projected by 2007. In April Msystems terminated an agreement with Samsung Electronics Co. Ltd., citing the memory giant’s “failure to abide by its supply commitments,” namely secured capacity of NAND flash memory.

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