This article is more than 1 year old

WD and HGST: We tried to merge our two drive makers, MOFCOM said NO, NO, NO

Chinese regulations cost $$$

Analysis Although WD’s acquisition of HGST was approved over two years ago, Chinese regulatory authority MOFCOM is still preventing the full integration of their respective drive-making ops.

The Ministry of Commerce of the People’s Republic of China (MOFCOM) has always maintained it was not keen to see WD and its HGST subsidiary move closer until the time was right, meaning at least 24 months after the acquisition, which took place in March 2012.

But here we are, 33 months later, and the two parties are as far apart as ever.

However, WD has released a statement saying progress has been made towards MOFCOM agreeing a full integration of the the companies: “It has successfully resolved two non-compliance matters with China's Ministry of Commerce ("MOFCOM”).

The two non-compliance matters relate to:

  • The organisation of a WDC department that included several former HGST employees
  • The re-alignment of the ownership structure of an indirect subsidiary of WDC

It gets worse: “To implement these resolutions, the company will pay a penalty of 600,000 RMB (approximately $100,000 in total), conduct an immaterial reorganisation of the department in question, and make certain modifications to its subsidiary structure that will be neutral and non-material from a tax and financial standpoint.”

However, while WD “cannot predict whether or when the agency will lift the hold separate condition, MOFCOM has indicated to the company that it is now fully focused on considering Western Digital's application to lift the restriction.”

Stifel Nicolaus MD writes: “WD has estimated up to $400m per annum in OPEX synergies and potentially more meaningful COGS (Cost of Goods Sold) synergies (we have previously estimated up to $200M/annum) realised over the 12-18 months post announcement.”

So that’s a potential $600m that the MOFCOM-caused delay is costing WD... It's execs must be quite frustrated by now. ®

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