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Western Digital pulls away with hard drive deal
Flash memory is gaining on hard drives in portable devices because in part because it’s light, compact and durable. But those aren’t important advantages in the server and high-end storage market, where huge volumes of data need to saved at low cost. Hard drives are still much cheaper than flash, bit-for-bit.
The corporate market “represents one of the most durable growth prospects” for the hard disk industry over the next five years, he added. The industry has suffered because of a downturn in consumer PC sales in the Great Recession, but is recovering.
IDC predicts that the industry will grow to $36.8 billion this year, up from $35.2 billion last year.
Irvine, Calif.-based Western Digital said that the deal includes $3.5 billion in cash, plus 25 million of its common shares. The stock is valued at $750 million based on the company’s Friday closing stock price of $30.01.
After the closing of the deal, Hitachi Ltd. will own about 10 percent of Western Digital. Two of the company’s executives will also join Western Digital’s board.
Japan-based Hitachi Ltd. makes a huge array of products from nuclear power plants to rice cookers. It has been reshaping its business, cutting jobs, closing plants and shedding segments, helping some money-losing businesses such as auto parts and digital media rebound into the black.
Hitachi bought the disk drive unit from IBM Corp. in 2002. It’s still based in San Jose, Calif., and has a factory there and in Rochester, Minn. It also has factories in China, Japan, Malaysia, the Philippines, Singapore and Thailand. It has 35,000 employees in all.
Other big recent deals include Seagate’s acquisition of Maxtor in 2006, and Toshiba’s acquisition of Fujitsu Ltd.’s hard drive business in 2009.
Steve Milligan, president and CEO of Hitachi Global Storage, will join Western Digital after the transaction’s completion. He will report to Western Digital CEO John Coyne.
Both companies’ boards have approved the acquisition, which is expected to close in the third quarter.
Western Digital said it plans to pay for the buyout with existing cash and about $2.5 billion in total debt.
The acquisition is expected to immediately add to Western Digital’s adjusted earnings per share.
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