SanDisk Corp., the world's largest maker of memory cards used in digital cameras, surged the most in eight years in New York trading after Samsung Electronics Co. made a $5.85 billion hostile bid for the company.

Samsung, the world's second-largest chipmaker, offered $26 in cash for each SanDisk share, 73 percent more than the memory- card maker's closing price in the U.S. yesterday. SanDisk rejected the offer.

A purchase would give Suwon, South Korea-based Samsung semiconductor patents held by SanDisk and help widen its lead over Toshiba Corp. in the $15 billion market for flash-memory chips that store songs and pictures in consumer electronics. The unsolicited offer signals Samsung's increased appetite for acquisitions after Lee Yoon Woo became chief executive officer in May.

``This aggressiveness is definitely a departure from the Samsung of the past decade,'' said Kim Hyun Wook, a fund manager at KB Asset Management Co. in Seoul, which has the equivalent of $2.6 billion in equities. ``Toshiba probably doesn't have the spare money to challenge Samsung to a bidding war.''

SanDisk, based in Milpitas, California, jumped $5.88, or 39 percent, to $20.92 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest advance since January 2000. Samsung closed unchanged at 525,000 won on the Korea Exchange, and is down 5.6 percent this year.

Rejection Letter

Samsung publicly disclosed its offer after receiving a Sept. 15 rejection letter from SanDisk Chief Executive Officer Eli Harari, ending four months of discussions, Samsung's Lee, 62, wrote in a letter today. The Korean company continues to seek a ``mutually agreeable'' deal, Lee said. James Chung, a spokesman at Samsung, said the company hasn't decided on its future course of action.

SanDisk said its board unanimously rejected Samsung's offer as too low. Samsung initially indicated it would be willing to pay a ``significant'' premium to the $28.75 per share price on May 22, when it first approached the U.S. company, SanDisk said.

Prior to Sept. 5, when Samsung disclosed it was considering a purchase, SanDisk had fallen 59 percent this year after a glut drove down flash-memory prices and led the U.S. company to its largest quarterly loss in almost seven years.

Samsung had a 42.3 percent share of the NAND flash memory- chip market in the second quarter, compared with Tokyo-based Toshiba's 27.5 percent and Hynix Semiconductor Inc.'s 13.4 percent, based on estimates from iSuppli Corp. Industry sales will probably rise 9 percent this year to $15.2 billion, according to the El Segundo, California-based research firm.

`Stubborn' Samsung

Samsung's proposal is a ``significant'' change as it suggests management is becoming more flexible in its growth plans, Citigroup Inc. analyst Henry Kim wrote in a report today. Samsung has had a ``stubborn'' tendency to focus on organic growth, BNP Paribas SA analyst Peter Yu said in a Sept. 5 report.

Under Yun Jong Yong, who resigned in May after almost 12 years as CEO, Samsung's purchase of AST Research Inc. for $434.8 million, including debt, was its biggest takeover, according to data compiled by Bloomberg. Yun stepped down in May, less than a month after the resignation of Samsung Group Chairman Lee Kun Hee, who in July was convicted by a Seoul court of tax evasion.

Current chief Lee joined Samsung Electronics in 1977 and previously served as the president of the semiconductor division and chief technology officer. Prior to Samsung Electronics, he worked at Samsung SDI Co.

Chip Royalties

An acquisition would benefit Samsung as it would gain patents for flash-memory-chip technology that cost the Korean company about $400 million in royalty payments annually, Citigroup's Kim said. A purchase may help the NAND industry recover as it may slow down production growth, Kim wrote.

An acquisition may face antitrust barriers, according to a report this month by UBS AG, which recommended that Samsung pursue production and distribution ties with SanDisk instead of a purchase. Morgan Stanley analyst Keon Han wrote in a Sept. 8 report that overcoming regulatory risk, including a potential review of whether a purchase threatens U.S. national security, would be the ``toughest barrier'' besides agreeing on a price.

Prices of the benchmark NAND flash memory have slumped 50 percent this year because of a glut, according to Dramexchange Technology Inc., operator of Asia's biggest spot market for chips. The outlook for the NAND industry may be worse six-to- nine months from now, according to the Sept. 8 UBS report.

SanDisk, which buys NAND flash to assemble memory cards, also manufactures the chip with Toshiba. Lehman Brothers Holdings Inc. analyst Steven Myers cut his investment rating on the Japanese chipmaker on Sept. 5 partly because a Samsung acquisition of SanDisk may force Toshiba to invest in future semiconductor factories on its own.

Hiroko Mochida, a spokesman for Toshiba, declined to comment when asked whether the bid will prompt Toshiba to take measures such as strengthening ties with SanDisk.

Source:Bloomberg