Seagate its to acquire rival hard disk drive maker Maxtor the two companies announced today, in a stock-swap valued at $1.9bn.
If shareholders and regulators back the deal, Seagate will offer 0.37 of its own shares for every Maxtor share issued, splitting the merged business 84:16 between Seagate and Maxtor shareholders.
The deal is a classic attempt to cut costs and achieve better economies of scale by bringing two companies together - 'Maxgate' expects to achieve approximately $300m of annual operating expense savings "after the first full year of integration". It also eliminates a competitor.
The last couple of years have proved hard for hard disk makers, thanks to aggressive competition, falling margins and plunging prices. In October, Maxtor fell back into the red after a brief stint in profitability. It lost $7.1m on sales of $926m.
Seagate, the most successful of HDD companies of late, announced net income of $272m on sales of $2.09bn in what was effectively the same three-month period.
Once the acquisition has been completed - sometime in H2 2006 - the merged company will trade as Seagate and continue to be run by Seagate executives. Maxtor CEO and chairman, C S Park, gets a directorship in the merged operation. Until then, the two companies will operate as separate businesses.
Seagate said it is sticking by its previous forecast of Q2 FY2006 - due to end 31 December 2005 - sales of $2.2bn with earnings within the 53-57 cents a share range. ®