Samsung Electronics Co., the world's second-largest chipmaker, made a $5.85 billion hostile bid for SanDisk Corp. to widen its lead in the market for semiconductors that store pictures and music in cameras and mobile phones.

Samsung offered $26 in cash for each SanDisk share, the Suwon, South Korea-based company said today in a statement. That's 73 percent more than SanDisk's latest closing price, leading the stock to jump 56 percent in after-hours trading.

A purchase would be the largest in the South Korean chipmaker's history and help Samsung widen its lead over Toshiba Corp. in the $15 billion market for flash-memory chips. The move signals Samsung's increased appetite for acquisitions after Lee Yoon Woo, 62, became chief executive officer in May.

``Given the SanDisk stock price, it's a very attractive bid but SanDisk will probably be smart and play hard to get,'' said Vijay Rakesh, who has an ``accumulate'' rating on SanDisk as a San Francisco-based analyst at ThinkPanmure LLC. ``It will probably start a bidding war with Toshiba.''

SanDisk, based in Milpitas, California, climbed $8.36 to $23.40 in late trading after closing at $15.04 on the Nasdaq Stock Market. Samsung fell 18,000 won to 525,000 won on the Korea Exchange yesterday.

SanDisk's said its board unanimously rejected Samsung's offer as it ``significantly'' undervalues the company's long-term prospects.

Full and Fair

``This offer is full and fair and we believe that, given an opportunity, your shareholders would agree,'' Samsung's Lee said in a letter to SanDisk's board. ``SanDisk continues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price.''

SanDisk, the world's largest maker of memory cards for digital cameras, has risen 12 percent in Nasdaq trading since Sept. 5, when Samsung said it was considering an acquisition of the U.S. company. Prior to that, the stock had fallen 59 percent in 2008 as lower flash-memory prices drove SanDisk to its largest quarterly loss in almost seven years.

Samsung had a 42.3 percent market share in 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 at iSuppli Corp. Industry sales will probably rise 9 percent this year to $15.2 billion, according to the El Segundo, California-based research firm.

Samsung's more proactive stance toward acquisitions is a positive change from its ``stubborn'' tendency to focus on organic growth, BNP Paribas SA analyst Peter Yu wrote in a Sept. 5 report.

Biggest Acquisition

Under Yun Jong Yong, who resigned in May after almost 12 years as chief executive officer, Samsung's purchase of AST Research Inc. for $434.8 million, including debt, was the company's 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.

An acquisition would be positive for Samsung, which pays $300 million to $400 million in royalty payments annually to SanDisk, as it would gain hundreds of patents for flash-memory- chip technology, Daiwa Institute of Research Ltd. analyst Jae Lee wrote in a Sept. 8 report.

Royalty Payments

SanDisk's revenue from licenses and royalties was $254 million in the six months ended June 29, according to its financial statements to the Securities and Exchange Commission. Samsung accounted for 13 percent of SanDisk's total sales, the biggest contributor, during the period, according to SanDisk.

Stumbling blocks to the deal may include antitrust barriers, UBS AG wrote in a report this month, recommending that Samsung pursue production and distribution ties with SanDisk instead of an acquisition. Morgan Stanley analyst Keon Han wrote in a Sept. 8 report that overcoming regulatory risk, including a potential review on 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 chips to assemble memory cards, also manufactures the semiconductor 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 would threaten to force Toshiba to invest in future semiconductor factories on its own.

Keisuke Ohmori, a spokesman for Toshiba, on Sept. 16 denied a Reuters report that the Japanese company was interested in making a bid for SanDisk.

Source:bloomberg