| Item 1.01. |
Entry into a Material Definitive Agreement |
On March 3, 2024, SanDisk China Limited (“SanDisk China”), an indirect wholly-owned subsidiary of Western Digital Corporation (“Western Digital” or the “Company”) entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with JCET Management Co., Ltd. (“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly listed company, under which SanDisk China will sell to JCET a majority of the equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (“SDSS”), an indirect wholly-owned subsidiary of Western Digital and a wholly-foreign owned enterprise incorporated as a limited liability company in the People’s Republic of China (“PRC”), thereby forming a joint venture between SanDisk China and JCET (the “Transaction”). Consummation of the Transaction (the “Closing”) is expected to occur in the third quarter of calendar 2024.
JCET will acquire 80% of the equity interest of SDSS for approximately $624 million based on a valuation of SDSS of $780 million. Payment will be made over five years as follows: (i) $218.4 million will be paid shortly after the Closing, subject to certain customary closing adjustments for cash, indebtedness and net working capital, (ii) $218.4 million will be paid in a second tranche closing at the later of January 1, 2025 and the date six months following the Closing, and (iii) the remaining $187.2 million will be paid in five equal installments of $37.44 million over the next five years following the Closing. The Company expects to use the proceeds to strengthen its financial position and flexibility as it moves toward completion of its previously announced separation of its HDD and Flash businesses.
After the Closing, JCET will own 80% of the equity interest in SDSS while SanDisk China will own the remaining 20%. Subject to completion of the ancillary agreements described below, the Company expects that the transaction will result in deconsolidation of SDSS and plans to account for its remaining indirect investment in the joint venture under the equity method of accounting.
The Equity Purchase Agreement includes customary representations, warranties and covenants, as well as customary interim covenants restricting SanDisk China from permitting SDSS to take certain corporate actions in between signing of the Equity Purchase Agreement and the Closing. The Equity Purchase Agreement also contains customary post-closing indemnification obligations of each party with respect to breaches of their respective representations, warranties, covenants and agreements and certain non-compete and non-solicitation restrictions on the part of SanDisk China, subject to customary carve-outs.
The Closing is subject to the satisfaction or waiver of certain closing conditions, including, among other matters: (i) execution and delivery of certain ancillary agreements (as described below); (ii) receipt and completion of certain government approvals and registrations (including completing PRC anti-trust filings); (iii) the absence of law or order that would prohibit or prevent the consummation of the Transaction (“Restraint”); (iv) receipt of certain third party consents and other closing deliverables; (v) no material adverse effect having occurred and be continuing with respect to SDSS; and (vi) such other customary conditions set forth in the Equity Purchase Agreement.
The Equity Purchase Agreement may be terminated prior to Closing: (i) by either the Company or JCET in the event that (A) any Restraint becomes effective, final and non-appealable, (B) there is an uncured breach of a representation, warranty or covenant such that the conditions to Closing would not be satisfied, (C) either SanDisk China or JCET fails to consummate the Closing within five business days after the satisfaction or waiver of the conditions or such other date agreed by both parties, or (D) certain conditions have not been satisfied or waived by December 31, 2024; or (ii) by the mutual consent of the parties. SanDisk China may terminate the Equity Purchase Agreement after the Closing in the event it has not received the first installment of payment of purchase price within 20 business days following the Closing. In the event the Equity Purchase Agreement is terminated due to either party’s breach or failure to close after the satisfaction or waiver of the conditions, the breaching party shall pay to the other a termination fee in the amount of $10 million. In the event the Equity Purchase Agreement is terminated due to the failure to obtain the PRC anti-trust approval, JCET shall pay to SanDisk China a termination fee in the amount of $10 million.
The Equity Purchase Agreement contemplates various ancillary agreements to be delivered as of the Closing including: (i) a shareholders agreement governing the joint venture relationships from and after the Closing (the “Shareholders Agreement”); (ii) an intellectual property license agreement (the “IP License Agreement”); (iii) a manufacturing and supply agreement (the “Supply Agreement”); and (iv) a transition services agreement (the “Transition Services Agreement”).