Western Digital soars as activist Elliott calls for separation of flash business (update)
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Updated 11:35am: Updates shares, adds Western Digital response.
Western Digital jumped 15% after activist Elliott Management disclosed a $1 billion, or 6% stake, and called for the company to separate its hard disk drives and NAND flash memory businesses.
By separating the businesses, Elliott believes Western Digital (NASDAQ:WDC) could reach $100+ by the end of 2023, representing 100% upside, according to a statement. In addition to its investment in WDC, Elliott is also offering $1 billion of incremental equity capital into the flash business at an enterprise value of $17 to $20 billion to be used for a spin-off or as equity financing in a sale or merger.
"By any objective measure, Western Digital has underperformedâoperationally, financially and strategicallyâas a direct result of the challenges of operating two vastly different businesses as part of the same company," Elliott's Jesse Cohn and Jason Genrich wrote in a letter to WDC's board. "This underperformance is particularly disappointing given the Company's great potential in both businesses." 
Elliott is calling on Western Digital's (WDC) board to conduct a full strategic review of the idea of separating the HDD and Flash business. Elliott highlighted that WDC's peers Seagate (STX), which has remained a "pure play" HDD player, and Micron (MU) have substantially outperformed WDC since the company acquired SanDisk in 2015.
Western Digital (WDC) said in a statement that it agrees that the company is undervalued and looks forward to engaging with Elliott to discuss the fund's views. 
âWestern Digital maintains an ongoing dialogue with our shareholders and values constructive input on our business," the company said in the statement. "We agree that Western Digital is an excellent, yet undervalued, company with strong positions in our flash and HDD businesses and look forward to engaging with Elliott to discuss their views."
Elliott's 2023 valuation assumes that HDD is worth $17.8 billion (1.9x CY23E revenue), that Flash is worth $18.1 billion (1.6x CY23E revenue) and that Western Digital generates more than $2 billion of free cash flow through the end of 2023, according to the letter.
On Friday, Western Digital reported Q1 results and analysts said the stock offered "attractive risk-reward."