SAN JOSE, Calif. (CN) - Directors are selling SanDisk too cheaply through an unfair process to Western Digital, in a cash and stock swap valued at $1.9 billion, a class claims in court.
Michael Cloud is the lead plaintiff in the lawsuit filed on Nov. 4 in Santa Clara County Court. He contends that the terms of the deal SanDisk and Western announced on Oct. 21 represent an "unusual arrangement" for the world's third-largest maker of flash disc storage systems.
Under the terms of the deal, "the amount of the merger consideration is contingent upon the consummation of a proposed investment by Unisplendor Corporation" in Western Digital, according to the complaint.
If the Unisplendor deal closes before the SanDisk merger, SanDisk stockholders will get $85.10 in cash and 0.0176 Western Digital shares for each SanDisk share.
If the Unisplendor deal has not closed or is called off, stockholders will get $67.50 in cash and 0.2387 Western Digital shares for each SanDisk share.
Regardless of which way it goes, Cloud says, the price is too low, "given SanDisk's recent stock price as well as its future growth prospects."
He also claims the directors "exacerbated their breaches of fiduciary" by agreeing to a no-shop provision that prevents bids from other companies; gives Western Digital four days to match any competing offer if one is made; and includes a cash termination fee of $184 million to $533 million if SanDisk makes a deal with a better bidder.
SanDisk reported $6.6 billion in income in 2014. SanDisk shares were selling at $78.86 Friday morning, on the NASDAQ.
Western Digital reported $15.1 billion in revenue in fiscal year 2014, with net income of $1.6 billion. Its shares were going for $67.62 Friday morning on the NASDAQ.
Unisplendor, based in Taiwan, makes household appliances such as fans and toasters. It offered in late September to buy 15 percent of Western Digital for $3.8 billion. The offer drove Western Digital share up by 15 percent in a day, from $68.87 to $79.44.
Cloud seeks class certification and wants the SanDisk-Western Digital deal enjoined, or rescinded if it's completed before the court rules, plus an accounting and damages for breach of fiduciary duty and aiding and abetting.
He is represented by Mark Punzalan of Redwood City.