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Western Digital Stock Gains On Report Japan May Back Kioxia Merger

Government officials could support a merger between Western Digital and memory chip maker Kioxia, Reuters reported Friday, provided tech secrets remain in Japan.

Western Digital  (WDC) - Get Western Digital Corporation Report shares moved higher Friday amid reports that the chipmaker is on track to get Japanese government approval for a possible $20 billion merger with flash memory manufacturer Kioxia. 

Kioxia, which was sold by Toshiba Corp. to a private equity consortium lead by Bain Capital in 2018, is one of the world's biggest NAND chipmakers in the world and a key supplier to Apple Inc.'s AAPL iPhones. It also competes with South Korea's Samsung Electronics and SK Hynix, which bought Intel Corp.'s  (INTC) - Get Intel Corporation (INTC) Report flash memory business last yea for around $9 billion.

A tie-up with Western Digital, which failed to buy the chipmaker when it was sold to Bain in 2018 but remains a manufacturing partner, could both vault the San Jose-based group into the global chipmaking elite while simultaneously ensuring that Japan's Kioxia isn't neutralized by its Asia-based rivals nor shut out of key markets in China. The combined group would have a collective 40% share of the global NAND market. 

Reuters reported Friday that Japan's Ministry of Economy Trade and Industry could approve a Western Digital takeover, provided it gives assurances that sensitive technical information remains protected. 

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Western Digital shares were marked 0.8% higher in early trading Friday, against a 0.2% gain for the Nasdaq, to change hands at $62.12 each, a move that would extend the stock's year--to-date gain to around 13%.

Any path to a full Western Digital merger remains uncertain, however, as reports continue to suggest that Toshiba, which owns around 40% of Kioxia, and Bain Capital prefer a straight IPO to a tie-up with a foreign buyer. 

Western Digital may also need to improve the anticipated $20 billion price tag, which most analysts assume will be paid in company stock, in order to win over both Kioxia management and its private-equity backers.