US flash memory maker SanDisk Corp rejected a US$5.9 billion-bid by top memory chip-maker, Samsung Electronics Co, but would not rule out a deal at a better price.

Buying SanDisk would help Samsung cut the US$350 million it pays each year to use SanDisk's patented flash technology, and widen the South Korean firm's lead in the flash memory market as the industry battles steep memory chip price falls due to a supply glut.

Offer undervalued

SanDisk said in a statement that Samsung's 26 dollars-a-share cash offer, an 80 percent premium to its Monday close, undervalued the company, but it remained open to a deal with Samsung at a price that recognizes its "intrinsic value".

Samsung had not yet made any decision on whether to raise its bid, said James Chung, a Samsung spokesman in Seoul.

A deal around that level would be the biggest takeover by Samsung, which has grown its business without resorting to big M&A deals.

Compact storage

Flash memory is a form of convenient and compact data storage that is used in a number of consumer gadgets, including digital cameras, cellphones and portable music players. The company uses Samsung's chips in its flash memory products.

SanDisk shares soared 53 percent to 23 dollars in extended trading on Tuesday after Samsung went public with its bid following months of private talks that failed to produce a deal.

On Tuesday, Japan's Toshiba Corp, which jointly operates a memory chip production plant with SanDisk in Japan, said it was open to a combination with SanDisk, but there were no concrete talks yet.

Toshiba, the world's No2 NAND flash maker, and third-ranked Hynix Semiconductor Inc both declined to comment yesterday on Samsung's offer.

Analysts said Samsung might buy SanDisk shares from institutional investors at the 26 dollars offer price, building up a minority stake to put more pressure on its target.

"Given SanDisk shares have lost so much value since late last year, and the NAND flash market is suffering a downturn that is likely to last for a while, there must be some institutional investors who want to sell to Samsung (and exit the market)," said Park Hyun, an analyst at Prudential Investment & Securities.

Arrangement made

"Samsung very likely has made some sort of arrangements with them before making the offer. Samsung could secure 20-30 percent of SanDisk initially, then work on raising its stake."

Writing to SanDisk CEO Eli Harari, Samsung CEO Yoon-Woo Lee said he was "deeply disappointed" that the Milpitas, California-based company "continues to cling to unrealistic expectations on both its stand-alone market value and an appropriate merger price".

Based on 225 million SanDisk shares outstanding, a deal at 26 dollars would be worth 5.85 billion dollars.

"This is a huge premium," said Yoshiharu Izumi, a JP Morgan analyst. "It's not clear at this stage what kind of market share Samsung would be able to grab, if this bid goes through."

Samsung ranked No 1 in the global NAND flash market in the second quarter with a 42.3 percent share, according to market research firm iSuppli, followed by Toshiba and Hynix, with 27.5 percent and 13.4 percent, respectively.

Harari said the offer was opportunistic, and Samsung was trying to take advantage of the industry-wide downturn and SanDisk's depressed stock price.

The company also said it was a possibility Samsung was trying to take advantage of ongoing licensing negotiations between the two groups, it said that Samsung did not address SanDisk's concerns about stockholder protection in the event of a deal. SanDisk failed to elaborate on this concern in its statement.