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Samsung Electronics has gone hostile over its initial talks with SanDisk to acquire the company were rejected. In a new move for Samsung, under the new leadership of Lee Yoon Woo, when he became Chief Executive Officer of the memory giant in May, 2008, the company has made a hostile bid for SanDisk valuing the flash memory specialist at $5.85 billion.

“We believe Samsung’s proposal does not provide appropriate value to our stockholders and is opportunistically timed at the trough of an industry-wide downturn,” commented Eli Harari, Chairman of the Board of SanDisk and Chief Executive Officer. “In our view, this proposal fails to recognize the value of our patent portfolio, in particular to Samsung, our significant investments in our strategic partnerships, and our technology leadership in 3 and 4 bits per cell flash memory, advanced controllers and three dimensional (3D) semiconductor memory. We believe we have the strategy, execution record, innovation and financial resources to return to profitable growth and be the flash memory leader in new growth markets in mobile devices, solid state disk, and portable consumer electronics.”

Samsung said that SanDisk ‘continues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price.’ Also noting that ‘the world has changed dramatically in the past 52 weeks as can be seen from SanDisk’s own disappointing results. Consumer spending and the overall economic situation have been getting worse. It will take the NAND flash market quite a bit of time to recover. Notwithstanding the current market conditions, to stay competitive, SanDisk will need to fund critical investment and development over the next several months – cost cutting alone will not suffice.’

According to SanDisk, discussions with Samsung started on May 22, 2008, soon after Lee Yoon Woo became the new head at Samsung. A key motivation on Samsung’s part for an acquisition, according to SanDisk was the opportunity to negate paying significant future royalties to SanDisk for its flash memory IP. Current royalty fees paid by Samsung are estimated to be in the region of $400 million per annum. With the significant growth expected in NAND flash over the coming years, those royalty figures climb into the $ billions over the next decade, SanDisk claimed.

Another key reason behind Samsung’s bid is thought to be SanDisk’s R&D in 3D (three dimensional rewritable semiconductor memory) technology that SanDisk claims will replace conventional technology in the future. Rumors have circulated that SanDisk’s 3D work is progressing better than expected and commercialization could be sooner than expected.

SanDisk also claimed in a statement rejecting Samsung’s advances that the Korean company had not followed normal practices, while requesting confidential information about SanDisk before procedures were put in place. SanDisk also wanted a new IP licensing deal put in place before negations continues, something Samsung said it had refused to do as this would become irrelevant after an acquisition.