(Reuters) -Elliott Management on Tuesday disclosed it held a stake of nearly $1 billion in Western Digital (NASDAQ:WDC) and pushed the company to conduct a strategic review and split off its flash-memory business.
New York-based Elliott, one of the world's most prominent activist investors, argued in a letter to the board that Western Digital's acquisition of SanDisk is not working well and the company would be better off separating the flash and hard drives business. It owns roughly 6% of the company.
Six years ago Western Digital paid $19 billion to buy SanDisk, boosting its ability to make flash memory storage chips used in smartphones and tablets. But operating two very different businesses as part of the same company has held it back, operationally, financially and strategically, Elliott wrote.
"When a strategy has so clearly failed to meet its objectives, we believe it is time to consider other alternatives," the letter said.
Western Digital makes hard drives, USB drives and memory cards. If it reverts to concentrate on its hard drives businesses, its stock price could surge to at least $100 a share by the end of next year, Elliott forecast. A "full separation of the Flash business can allow both HDD and Flash to be more successful and unlock significant value," the letter said.
San Jose, California-based Western Digital is valued at $16.8 billion and its shares rose nearly 12% to $60.12 in early trading. In the last 52 weeks, Western Digital's shares have fallen 23.7%, while the index is down 15%.
Western Digital said it would "carefully" consider Elliott's ideas and agrees that it is an "excellent, yet undervalued, company." The company also said it has "explored a range of options to unlock and deliver long-term value and we will continue our ongoing dialogue" with shareholders.
The HDD business can be valued at roughly $17 billion Elliott said, adding "the implications are extraordinary for investors."
Elliott also wrote that it offered over $1 billion of incremental equity capital into the Flash business at an enterprise value of $17 billion to $20 billion which could be used in a spinoff transaction or as equity financing in a sale or merger.