TRADE UPDATE: BUY SANDISK (NSDQ: SNDK)

Samsung (Korea: 005930) has pulled its bid for SanDisk. We thought the original $26-per-share bid, valuing the company at $5.8 billion, was generous, but management didn’t agree.

The California-based flash memory chip specialist fought the takeover bid, which would have meant integrating or being completely absorbed by the highly successful technology leader in Seoul. CEO and board chairman Eli Harari was quite vocal in criticizing the bid as too low and protesting that it undervalued the company.

Earlier this week, as part of his defense against the buyout, Harari negotiated the sale of chip manufacturing equipment and facilities to Toshiba (OTC: TOSBF). The move was made to further reduce SanDisk’s attractiveness to Samsung. But Samsung couldn’t care less about the plant and equipment; it wants SanDisk’s patents and development business.

Also, compared to royalty payments made annually to SanDisk, the $5.8 billion was an easy payment for Samsung, which is flush with cash and has little debt. Those characteristics are common among its local peers.

Although the gut reaction would be to dump the SanDisk shares, we’re now agreeing with Harari’s view that the market–not Samsung–is valuing the company too low, based solely on its flash technology. Many analysts are talking about how the electronics industry will suffer in a further economic slowdown, the market, even before today’s early trading, has already put the value of the company at a huge discount to trailing revenues and net assets.

Let’s hold this one, and we’ll see whether we might want to buy more. Perhaps another suitor might be able to romance Harari into working another deal, and maybe he’ll recall that maximizing shareholder value is job No. 1. Hold SanDisk.