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Monday, March 07, 2011

Hard drive market consolidation continues as Western Digital acquires Hitachi GST in $4.3bn deal

Deal creates drive giant

By Nick Flaherty www.flaherty.co.uk

Western Digital is to acquire Hitachi Global Storage Technologies (Hitachi GST), a wholly-owned subsidiary of Hitachi, for approximately $4.3 billion. The deal creates a global giant that will outship the current #1 supplier, Seagate.

Apparently WD tried to buy Seagate late last year for a rumoured bid above $8bn while Seagate was in negotiation to sell to a private equity firm. The Hitachi deal gives WD the scale it need to compete and be sustainably profitable. The next challenge is managing the transition to Solid State Drives.     
"The acquisition of Hitachi GST is a unique opportunity for WD to create further value for our customers, stockholders, employees, suppliers and the communities in which we operate," said John Coyne, president and chief executive officer of WD. "We believe this step will result in several key benefits-enhanced R&D capabilities, innovation and expansion of a rich product portfolio, comprehensive market coverage and scale that will enhance our cost structure and ability to compete in a dynamic marketplace. The skills and contributions of both workforces were key considerations in assessing this compelling opportunity. We will be relying on the proven integration capabilities of both companies to assure the ongoing satisfaction of our customers and to bring this combination to successful fruition." 

"This brings together two industry leaders with consistent track records of strong execution and industry outperformance," said Steve Milligan, president and chief executive officer, Hitachi Global Storage Technologies. "Together we can provide customers worldwide with the industry's most compelling and diverse set of products and services, from innovative personal storage to solid state drives for the enterprise."

Hiroaki Nakanishi, president, Hitachi, Ltd. said, "As the former CEO of Hitachi GST, I always believed in the potential of Hitachi GST to become a larger and more agile company. This is a strategic combination of two industry leaders, both growing and profitable. It provides an opportunity for the new company to increase customer and shareholder value and expand into new markets. Additionally, it is important to us that WD shares common values with Hitachi GST to create a more global company that is well positioned to define a broader role in the evolving storage industry."

Deal details:
WD will acquire Hitachi GST for $3.5 billion in cash and 25 million WD common shares valued at $750 million, based on a WD closing stock price of $30.01 as of March 4, 2011. Hitachi will own approximately ten percent of Western Digital shares and two representatives of Hitachi will be added to the WD board of directors at closing. The transaction has been approved by the board of directors of each company and is expected to close during the third calendar quarter of 2011. WD plans to fund the transaction with a combination of existing cash and total debt of approximately $2.5 billion.

The resulting company will retain the Western Digital name and remain headquartered in Irvine, California. John Coyne will remain chief executive officer of WD, Tim Leyden chief operating officer and Wolfgang Nickl chief financial officer. Steve Milligan, president and chief executive officer of Hitachi GST, will join WD at closing as president, reporting to John Coyne.
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