Longing Lasts for Lexar

An analyst says SanDisk could re-enter the bidding.
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Updated from 5:04 p.m. EST

SanDisk

(SNDK)

may not be entirely out of the bidding to buy

Lexar Media

(LEXR)

following its failed offer to acquire the company last year.

That's the conclusion of one Wall Street analyst after a review of the details of a recent

Securities and Exchange Commission

filing

concerning Lexar's acquisition plans.

Lexar announced its intention to merge with

Micron

(MU) - Get Report

earlier this month in a stock deal valued at roughly $684 million. The deal has drawn sharp opposition from several hedge funds, including Carl Ichan's Icahn Partners, who contend that it significantly undervalues Lexar.

On Tuesday, Lexar revealed in an SEC filing that it made overtures to 11 companies about a buyout over the course of a year. According to the filing, one unnamed company offered to acquire Lexar for $8.75 a share in November 2005. The deal fell through, however, because of the offer's quick timing requirements and regulatory concerns.

Many people believe that unnamed company is SanDisk, given the references to antitrust concerns. SanDisk and Lexar are two of the largest sellers of flash media cards in retail stores.

In a note to investors Thursday, American Technology analyst Satya Chillara contended that Lexar's antitrust concerns may have been overdone.

"We believe the combined entity (SanDisk + Lexar) would have only 50% to 55% market share in the U.S., and there are at least 10 other companies in the flash card/USB/MP3 player business," Chillara wrote in the note. What's more, he said, the manufacturing of NAND flash chips is dominated by

Samsung

, which has more than 50% market share.

Chillara believes there's still a 30% to 40% chance that SanDisk could come back to the table and make a rival bid to acquire Lexar. While it's unlikely that a new SanDisk offer would exceed $10 a share, Chillara says it could be enough to make Lexar reconsider its deal with Micron.

SanDisk spokesperson Ken Castle said the company would not comment on anything to do with Lexar. Shares of SanDisk closed up $1.69, or 2.9%, to $59.13.

One major issue affecting the situation is the fate of Lexar's valuable intellectual property relating to flash-memory controllers. Under the terms of the Lexar-Micron marriage, Micron could in certain instances have royalty-free cross-licensing rights to Lexar's intellectual property through 2011, even if the deal is terminated. If SanDisk were to acquire Lexar, Chillara said, SanDisk could potentially challenge the validity of that licensing agreement in court.

Even without a rival offer from SanDisk, Chillara said it's possible that shareholders could vote down Lexar's merger with Micron. (Chillara has no stake in the companies mentioned).

Shares of Lexar closed up 29 cents, or 3.3% to $9. Micron's stock was up 46 cents, or 3.2%, to $14.89.