stock was jumping Tuesday after activist investor Elliott Investment Management disclosed it was pushing the company’s board to spin off its flash memory business.
Western Digital operates two main segments—a hard disk drive segment and NAND flash memory segment. In a letter to shareholders on Tuesday, Elliott said a full separation of the flash business could allow both segments to be more successful and unlock “significant value.”
Elliott said it believes this course of action could drive the share price to more than $100 by the end of 2023, and urged Western Digital’s board to conduct a strategic review into the separation.
“By any objective measure, Western Digital has underperformed—operationally, financially and strategically—as a direct result of the challenges of operating two vastly different businesses as part of the same company,” Elliott said in the letter.
Elliott added that it was prepared to invest more than $1 billion into the stand-alone flash segment at an enterprise value of $17 billion to $20 billion to be used either in a spinoff transaction or as equity financing in a sale or merger with a strategic partner.
Elliott has a 6% stake in Western Digital, amounting to approximately $1 billion.
“Western Digital maintains an ongoing dialogue with our shareholders and values constructive input on our business,” Western Digital said in a statement on Tuesday. “We agree that Western Digital is an excellent, yet undervalued, company with strong positions in our flash and HDD businesses and look forward to engaging with Elliott to discuss their view.”
The company added that management had explored a range of options to unlock and deliver long-term value.
The stock was up 15% following Elliott’s letter. The shares have lost about 4.8% year to date.
Write to Sabrina Escobar at [email protected]