Activist investor Elliott Investment Management disclosed Tuesday that it sent a letter to Western Digital, calling on the company's board to spin off its flash-memory chip business. WDC stock jumped.
Elliott said it offered Western Digital $1 billion to facilitate a sale or spinoff of the memory chip business, giving it an enterprise value of $17 billion to $20 billion. Elliott has a 6% stake in Western Digital, worth about $1 billion.
Western Digital did not respond to a request for comment.
In addition to making flash memory chips, Western Digital is also a leading provider of hard disk drives, where it competes with Seagate Technology.
Western Digital stock soared 14.5% to close at 61.72 on the stock market today. Seagate stock climbed 1.8% to finish at 83.89.
"By any objective measure, Western Digital has underperformed — operationally, financially and strategically — as a direct result of the challenges of operating two vastly different businesses as part of the same company," the letter by Elliott said.
WDC Stock: Upside Of 100%
"By executing on a separation, we believe Western Digital stock could reach $100-plus a share by the end of 2023, representing uniquely attractive upside of approximately 100%," the letter said.
Elliott is an investment firm that says it manages about $51.5 billion of capital for both institutional and individual investors.
Western Digital was founded in 1970 as a manufacturer of electronic test equipment. It entered the disk drive market in the 1980s. It then entered the memory chip business in 2016 with its $19 billion purchase of SanDisk.
Western Digital announced fiscal third-quarter results in late April. Revenue rose 6% from the year-ago quarter to $4.38 billion. Adjusted earnings jumped 62% to $1.65 a share.
WDC stock is down about 26% this year.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
