Western Digital closes Hitachi GST acquisition

Western Digital on Thursday completed the acquisition of the hard drive business of Hitachi, and set up two subsidiaries with separate brands and products, to meet the conditions of antitrust regulators.

The company said in a statement late Thursday that it completed the acquisition of Viviti Technologies, formerly Hitachi Global Storage Technologies, effective March 8 for $3.9 billion in cash and 25 million shares of its common stock valued at about $0.9 billion.

Hitachi now owns 10 percent of Western Digital’s shares outstanding. Western Digital has paid about $392 million more in cash as part of an amendment to the purchase agreement. Western Digital will operate with WD Technologies and HGST as wholly-owned subsidiaries, with total revenue in 2011 of $15 billion.

“Similar to successful multi-brand models in other industries, the two subsidiaries will compete in the marketplace with separate brands and product lines while sharing common values of customer delight, value creation, consistent profitability and growth,” Western Digital said.

Western Digital announced the proposed acquisition in March last year. But its completion was delayed largely because of the need for regulatory clearances, amid concerns that the acquisition could reduce competition in the hard drive market in the wake of plans by Seagate Technology to acquire the hard disk drive (HDD) business of Samsung Electronics.

China’s Ministry of Commerce approved recently the Western Digital acquisition, but put the condition that the Hitachi unit operate independently for at least two years after the acquisition, citing concerns that the deal would weaken competition in the market.

Western Digital did not immediately respond to a request for comment.

“We are pleased with the operating model for WD—a model that has proven successful in other industries, where companies with scale and multiple competing brands deliver strong financial performance by creating customer and shareholder value,” it said in a statement with supplemental information for investors.

The U.S. Federal Trade Commission said earlier this week it will require Western Digital to sell off assets used to manufacture and sell desktop HDDs to Toshiba. The proposed order settles charges that the deal as originally proposed would have left only two companies, Western Digital and Seagate, in control of the entire worldwide market for desktop HDDs, FTC said.

While approving the acquisition in November, the European Commission said Western Digital has to find a suitable purchaser, approved by the Commission, for its 3.5-inch hard-disk drive production assets.

Western Digital said last month that it will be divesting certain assets to Toshiba, including manufacturing equipment and intellectual property, to comply with regulatory requirements that will enable Toshiba to enter the 3.5‐inch desktop and consumer electronics market segments and expand its capacity in 3.5‐inch near‐line enterprise products.

The company said it had not yet made a decision on “the future operation or use” of the facilities in Thailand it will acquire from Toshiba as part of the agreement, but plans to integrate the workforce into its operations in Thailand.

Hit by floods in Thailand, which affected operations at its factories there, Western Digital lost its top position in the HDD market to Seagate in the fourth quarter of 2011, according to research firm IHS iSuppli. The company had a 23 percent share of the market to Seagate’s 38 percent. HGST had a 14 percent share, iSuppli said.

Seagate said in December it completed the acquisition of the HDD business of Samsung Electronics, after it received approval for the deal in Australia, China, and the European Commission.

[John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John’s email address is johnribeiro@idg.com_]

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