Samsung Electronics Co. Ltd. (Korea: SEC) on Wednesday dropped its $5.85 billion offer for SanDisk Corp. (Nasdaq: SNDK), saying the company was no longer worth the money because of the growing uncertainty in the flash memory maker's business and its deteriorating finances.

Samsung notified the SanDisk board of its decision in a letter sent two days after the latter company reported a wider-than-expected quarterly loss and said it would slash costs and sell some equipment to manufacturing partner Toshiba Corp. (Tokyo: 6502) in order to bolster its finances. The dismal performance sent SanDisk shares well below Samsung's offer of $26 a share.

In the letter, Yoon Woo Lee, vice chairman and chief executive of South Korea-based Samsung, said he was "disappointed" the two companies couldn't reach an agreement, but said Samsung had to "squarely face the growing uncertainties in [SanDisk's] business, which may continue to deteriorate in this difficult economic environment and further impact your standalone value.

"Your recently announced third quarter results serve only to illustrate this risk," Lee said. "Your surprise announcements of a quarter-billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba, and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a standalone basis as well as to Samsung."

In response, SanDisk, based in Milpitas, Calif., issued a statement saying that it had been open to a deal with Samsung, but found the original offer too low.

"We repeatedly outlined a clear path to hold further discussions, including most recently in our letter on September 15, and Samsung consistently chose to ignore that path and, in fact, never contacted SanDisk regarding their proposal after we delivered our letter," the company said. "We believe this raises questions about the real motivations behind Samsung's offer."

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