|As I have noted earlier, Toshiba is willing to give WDC the right of first refusal, and apparently nothing more. WDC is adamant that, regardless of the potential buyer, WDC has the right to approve the offer, based on the provisions of the original joint venture agreement between Toshiba and SanDisk. WDC has, rather awkwardly, antagonized Toshiba's board of directors by airing the disagreements in public, causing board members to lose face if their motive of maximum sale price is contested and overturned in court. How all this ends up is still unknown. If WDC wins, it will take longer than expected to resolve all problems, and it may be that a deal involving WDC would require paying Toshiba more than $18 billion, and closer to the higher bids near $20 billion.|
The latest article from BARRON'S indicates that traders are heavily involved in spreading rumors, whether correct or not, because it makes the share price fluctuate enough to make profits going down or going up. A January 2018 put option with a strike price of $90, for example, now sells for about $10.50. That is, if the deal with WDC goes through, and WDC shares run up from the current $85 to $90 before expiration, the value of the put will decline to zero, and a put seller will pocket about $10/share for the risk. In other words, that particular put option still carries a premium of $5. If the price of WDC remains at $85 until the option expires, the option writer will break even. If WDC declines even more, the option writer will lose.
Even though WDC theoretically has an advantage regarding who may buy Toshiba's portion of the joint venture, the risk of a deal involving WDC, consummated before year end, is now much greater than it was even a week ago. The risk to WDC of NOT being able to buy Toshiba's portion is that the production capability and the proprietary technology from SanDisk will fall into the hands of a competitor.