An activist investor urged WD to split the business. Shares soared 13%

Hedge fund Elliott Investment Management called for the production of memory chips into a separate company,which in the future may lead to an increase in the company's shares by more than 85% Western Digital WDC$61.68 +14,31% Buy NVIDIA NVDA$194.06 -0,96% Buy AMD AMD$90.42 -0,1% Buy

Shares of Western Digital as of 16:34 Moscow time jumped by 13.5% to $61.2 apiece. By 17:53 Moscow time, growth slowed down to 11.33%, the price of one security fell to $60.03, according to trading data on NASDAQ.

The catalyst for the growth of quotations was the appeal of the hedge fund Elliott Investment Management to the board of directors of the Californian company with a call to divide its business into two parts. According to REUTERS, the fund, which owns about 6% of the shares, advocates the creation of a separate company for the production of NAND flash memory chips.

The investment company also agreed to invest more than $1 billion in the business to finance its spin-off or sale to third parties. At the same time, Elliott Investment Management estimates that the value of a new separate memory chip company will reach $17-20 billion. The hedge fund also expects that as a result of the split, the value of one share of Western Digital could exceed $100 by the end of 2023, which represents an increase more than 85% from the May 2 close of $53.92.

Western Digital WDC $61.68 (+14.31%) 1d 1d 1m 3m 1y All time Created with Highcharts 7.2.2

In 2016, Western Digital acquired SanDisk Corporation for $19 billion to expand its ability to manufacture memory chips for smartphones and tablets. Now, Elliott Investment Management said the computer electronics maker failed to take full advantage of the deal's potential.

“By any objective measure, Western Digital has been underperforming – operationally, financially and strategically – due to the challenges of running two very different businesses within the same company. Such inefficiency is especially disappointing, given the Company's great potential in both directions,” follows from the appeal to the Board of Directors.

HSBC's largest shareholder insists on splitting business into two parts Banking & Finance , Asia ,  CHINA ,  usa

At the same time, the hedge fund emphasized that the inefficiency of the Western Digital structure was indicated long before the arrival of the current CEO of the company, David Gekeler and his team. On the contrary, in 2020, the management of Western Digital made the right decision, according to Elliott Investment Management, and separated the production of hard drives and memory chips into two separate divisions. However, this was not enough, the activist investor concluded.

The American manufacturer of computer electronics on April 28 published a report for the third quarter of fiscal year 2022. So, net profit compared to the second financial quarter decreased by 96%, to $25 million, revenue - by 9%, to $4.83 billion.

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