Western Digital Plans $4.3B Buy Of Hitachi GST

The deal, expected to close in the third quarter of 2011, calls for Western Digital to pay Hitachi GST $3.5 billion in cash and 25 million Western Digital shares, worth about $750 million. The deal will leave Hitachi Ltd., the Japanese parent of Hitachi GST, in control of about 10 percent of Western Digital. Hitachi also will name two representatives to the Western Digital board of directors.

The combined entity will keep the Western Digital name and remain based in Irvine, Calif. Western Digital's top executives, including CEO John Coyne, COO Tim Leyden and CFO Wolfgang Nickl, will keep their existing positions after the deal closes, while Hitachi GST President and CEO Steve Milligan will join Western Digital as president.

The pending acquisition of Hitachi GST is just one more sign of the consolidation going on in the hard drive industry, said Joe Toste, vice president of marketing at Equus Computer Systems, a Minneapolis-based system builder.

The channel currently has only two major hard drive choices in Western Digital and Seagate, a situation likely to continue, Toste said. Seagate is the strongest channel player, while Western Digital has also done well in the channel and has been key in driving volume for the storage industry as a whole, he said. Hitachi GST has been much more of an OEM player, he said.

"Now there are two," Toste said. "Western Digital and Seagate. It's like AMD and Intel in the processor market. There are others out there. But they're not as pervasive."

There used to be many more. Twenty years ago, there were more than 50 hard drive manufacturers.

Hitachi GST is itself the result of a merger of the hard drive businesses of Hitachi and IBM after the two agreed in 2002 to combine their efforts in a joint venture.

More recently, Toshiba Corp. and Fujitsu Ltd. in 2009 concluded an agreement to transfer Fujitsu's hard drive business to Toshiba, creating the world's largest manufacturer of mobile drives.

Seagate has long been the leading hard drive manufacturer in terms of volume. However, Western Digital in 2010 for the first time took the top spot in the category of hard drive shipments from Seagate, according to research firm iSuppli.

Aaron Rakers, an analyst with research firm Stifel Nicolaus, wrote in a report after Western Digital's acquisition bid for Hitachi GST was announced that the two companies would have a combined hard drive shipment market share of 49 percent, which includes 31 percent for Western Digital and 18 percent for Hitachi GST. This compares to about 29 percent for Seagate, Rakers wrote.

Neither Western Digital or Seagate were able to respond to requests for more information at press time.