Consolidation in the storage business is continuing in 2011. Western Digital today announced its intention to acquire Hitachi Global Storage Technologies (Hitachi GST) in a deal valued at $4.3 billion.
Hitachi GST is a wholly owned subsidiary of Hitachi Ltd. The proposed deal involves $3.5 billion in cash and 25 million Western Digital (WD) common shares. The deal is expected to close in the third calendar quarter of 2011. Hitachi’s storage division has its roots in IBM’s hard disk drive (HDD) business, which Hitachi acquired from IBM in 2002 for $2.05 billion.
“The unique thing about this transaction is that both companies are successful and both are growing,” John Coyne, president and chief executive officer of Western Digital said during a conference call discussing the deal. “That allows us to offer our customers the comfort that existing product lines will continue to be shipped to their requirements at their option.”
When Hitachi acquired the disk drive business from IBM, the unit was a money losing venture. Coyne noted that the new combined company will continue to be profitable. As such, Coyne said that WD will not have the pressure of previous industry combinations to do early consolidation and end-of-life product lines, which then disrupts product availability. He added that the culture at WD and Hitachi GST are also similar.
“There is an aligned path to this consolidation. I won’t say easy, but I say aligned,” Coyne said. “We don’t underestimate the challenges, but we believe there are structural differences that will help us to put these two businesses together and continue to grow profitably.”
Overall, Coyne positioned the Hitachi GST acquisition as being complementary to WD’s existing efforts. He noted that Hitachi GST’s silicon wafer fabrication and engineering capabilities are positive additions to WD’s overall footprint. In particular Coyne commented that the Hitachi GST engineering resources are very complementary to a to a currently constrained availability of engineering resources in the U.S, market.
“We’re very happy to be able to access that new talent pool,” Coyne said.
Consolidation in the HDD market isn’t a new thing. Rival storage vendor Seagate acquired Maxtor for $1.9 billion back in 2005.
“We view WD’s acquisition of HGST as a competitive negative for Seagate,” analyst firm Stifel Nicolaus wrote in a research note.
Prior to the acquisition closing, Coyne stressed that it will remain business as usual at WD.
“It is WD’s position that we will continue to offer compelling value to our customers and to seek to approach the market in the same way we have before this announcement,” Coyne said.