Elliott Pushes Western Digital to Separate Businesses

Elliott, which said its stake in Western Digital is worth some $1 billion, argued in a letter sent to the company’s board Tuesday that Western Digital has underperformed due to the challenges of operating two businesses as part of the same company. Elliott said Western Digital’s legacy disk drive business is once again a growth business due to industry trends.

Western Digital’s rivals, including

Seagate Technology Holdings

STX 0.41%

PLC and

Toshiba Corp.

, have sought to distinguish themselves by remaining pure-play bets, Elliott said. It added that Western Digital is the only company that operates in both the disk drive and flash storage businesses.

By separating the businesses, Elliott said Western Digital stock could rise above $100 a share by the end of 2023, representing an upside of about 100%.

Elliott also said in its letter that it is offering more than $1 billion of incremental capital into Western Digital’s flash-memory business at an enterprise value of $17 billion to $20 billion to be used in a spinoff transaction or as equity financing in a sale or merger.

Shares of Western Digital rose more 10% in premarket trading to $59.67 a share. The stock is down about 17% so far this year.

Representatives for Western Digital weren’t immediately available for comment.

When Western Digital disclosed the SanDisk acquisition in 2015, the deal was opposed by at least one top shareholder, Alken Asset Management Ltd., which urged the company to walk away from the deal, arguing it was too expensive.

“The stated rationale for the deal was the expected synergistic effects of combining a broad portfolio of technologies, improved strategic positioning with customers and an enhanced financial profile,” Elliott said Tuesday in the letter to Western Digital. “Unfortunately for the Company and its shareholders, none of these benefits have been realized.”

In its letter, Elliott said it backed Western Digital’s Chief Executive

David Goeckeler

and the rest of his management team, saying that the issues at the company predate current leadership.

In 2020, Western Digital said it would form separate business units for its two units, each to be led by its own general manager. Elliott said Tuesday that was the right move, adding that the two technologies require separate manufacturing processes and can sometimes compete with each other.

“It is unfortunate that this decision occurred only after years of execution issues as an integrated business,” Elliott said.

Western Digital has been looking at acquisitions of its own lately. The Wall Street Journal reported in August that the company was holding talks to merge with Japan’s Kioxia Holdings Corp., which also makes NAND flash-memory chips, though the talks were later put on ice.

Write to Will Feuer at [email protected]