Western Digital to Court Investors With $10B Loan Package for SanDisk Takeover

 | Mar 14, 2016 | 9:35 AM EDT
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Data-storage giant Western Digital (WDC) is preparing to court investors this week with a nearly $10 billion loan package, backing its roughly $19 billion acquisition of rival SanDisk (SNDK), according to a source familiar with the deal.

The Irving, Calif.-based company is set to launch the loan package in two principal components: a $5.9 billion seven-year term loan B, known as an institutional loan; and a $3 billion five-year term loan A, which uses an amortizing structure, based on documents obtained by Real Money, provided by the person who spoke on the condition of anonymity because terms of the deal are private.

The debt package will also include a $1 billion revolving credit facility, which essentially functions as a corporate credit card.

JPMorgan (JPM) is said to be the lead underwriter on the deal, and will be hosting a meeting with investors on Tuesday, the documents said. Bank of America (BAC), Credit Suisse (CS) and RBC (RY) are secondary bookrunners on the deal.

The new debt is expected to pull Western Digital's leverage to 2.7x through total debt over EBITDA; and 1.2x through first-lien debt, the documents said. EBITDA is a standard valuation method standing for earnings before interest, taxes, depreciation and amortization.

Western Digital announced its plans to tie up with rival SanDisk last October, offering to pay $85.10 per share of SanDisk.

"This transformational acquisition aligns with our long-term strategy to be an innovative leader in the storage industry by providing compelling, high-quality products with leading technology," Western Digital CEO Steve Milligan said at the time. "The combined company will be ideally positioned to capture the growth opportunities created by the rapidly evolving storage industry. I'm excited to welcome the SanDisk team as we look to create additional value for all of our stakeholders, including our customers, shareholders and employees."

Big-cap target of the week: Western Digital

Both companies have been struggling to impress Wall Street with substantial earnings over the past year, and it appears the two are hoping to look for opportunities to trim costs and build scale through the takeover. Western Digital shares are down roughly 49% over the past 12 months, while SanDisk shares have declined about 8.5% over the period.

Prospects for the deal were temporarily snagged in February when Western Union's partner in the deal, Beijing-based Tsinghua Unisplendour, balked at a proposed investigation into by the Committee on Foreign Investment in the United States (CFIUS), which announced it would review the deal terms, as Real Money reported.

The remainder of the debt financing for the takeover is expected to come a more than $8 billion in bridge loans, which serve as temporary financing until a more permanent debt structure is established, Bloomberg News reported.

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