In one of the last blockbuster deals of 2005, Seagate has agreed to acquire long-time rival hard-disk drive maker Maxtor for $1.9 billion in stock.
With the deal, Seagate expects to strengthen its position as the dominant hard-drive maker for computer systems.
HDDs are critical for storing data and have taken on a bigger role in storage networks, as corporations continue to sock away more data. Moreover, federal record-retention mandates have required data to be saved unaltered for long periods of time.
Seagate’s management team spent roughly an hour on a conference call today assuring investors that the merger will help Seagate achieve greater scale, reduce product costs and allow the combined company to offer more innovative products at more competitive prices.
“We believe the integration challenge and risk associated with this transaction is low compared to other combinations that have taken place in the storage industry,” Seagate CFO Charles Pope said on the conference call.
“We think the story here is one of leveraging the ability to scale an established model, of owning the key component technologies, broad product coverage, and a proven manufacturing infrastructure,” Pope continued.
For example, he said Maxtor’s media operations represent an attractive capability that Seagate needs to harness to augment its existing media capabilities. Maxtor’s China operations should also afford Seagate the capacity to ramp volume.
Pund-IT analyst Charles King said it makes sense for Seagate and Maxtor to get together and will probably help Seagate centralize operations and drive additional savings.
“Over time it could help bring the prices of drives down more so than we’ve seen up until now,” King said. “It’s really interesting to see those two get together after so long. At the same time, it’s probably evidence of a coup de grace on the whole concept of disk drives becoming commodity products.”
Pope said the transaction is expected to be at least 10 percent to 20 percent accretive to Seagate on a cash earnings per share basis after the first year of combined operations. The combined company expects to save $300 million in operating expenses after the first year of integration.
Maxtor shareholders will receive .37 shares of Seagate common stock for each Maxtor share they own. Should the deal close in the second half of 2006 as planned, Seagate shareholders will own approximately 84 percent and Maxtor shareholders will own 16 percent of the combined company.
There is a termination fee of $300 million payable to Maxtor under certain conditions.
Seagate’s executive management team will remain the same. Maxtor CEO C.S. Park will become a director of Seagate upon the closing of the transaction.
Seagate COO Dave Wickersham is overseeing the integration and Seagate and Maxtor will operate as separate businesses before the closing.
The combined company will retain the Seagate name and executive offices will be located in Scotts Valley, Calif.
Seagate also said its previously announced outlook for the December quarter of $2.2 billion in revenue and earnings per share in the range of 53 cents to 57 cents remains unchanged.
Article courtesy of InternetNews.com