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Western Digital's Hitachi GST Buy Is a Done Deal

By Pedro Hernandez

Regulatory hurdles cleared, and with a near-$5 billion payout, Western Digital will operate Hitachi GST as a subsidiary.

After meeting the conditions imposed by the Federal Trade Commission (FTC) and China's Ministry of Commerce, Western Digital announced that it had completed the acquisition of former storage rival Viviti Technologies, a holding company for Hitachi Global Storage Technologies (GST).

Western Digital will now conduct business under a new corporate structure, in which John Coyne remains CEO and Tim Leyden stays as COO. Western Digital Technologies and Hitachi GST will operate as wholly owned subsidiaries.

"Similar to successful multibrand models in other industries, the two subsidiaries will compete in the marketplace with separate brands and product lines," said John Coyne. Picking up the title of president is Steve Milligan, formerly president and CEO of Hitachi GST.

The announcement caps a yearlong effort to close the book on a deal that was first announced in March 2011. As it turns out, it takes more than an offer of $4.3 billion to take a major storage vendor off the table.

Pending Regulatory Approval

As is customary in any big acquisition, regulatory bodies like the FTC weigh in to assess what impact it will have on the market. Following years of consolidation, the FTC feared that if Western Digital snapped up Hitachi GST, it would establish a duopoly with Seagate on the global 3.5-inch desktop hard drive (HDD) market.

During the past decade, the hard drive space has been whittled down to a handful of vendors. In 2002, Hitachi bought IBM's ailing hard drive business. Three years later in 2005, Seagate bought Maxtor for $1.5 billion. Last year, Samsung sold its HDD unit to Seagate for nearly $1.4 billion.

The FTC ruled that for the deal to close, Western Digital must sell Hitachi GST's 3.5-inch HDD manufacturing assets and IP to Toshiba to preserve a competitive landscape, echoing a similar ruling by the European Commission in November 2011 that Western Digital sell its 3.5-inch drive making business for the deal to proceed. China's Ministry of Commerce, concerned about the impact of integrating Hitachi GST into Western Digital, ruled that Hitachi GST must operate in China essentially unchanged for at least two years.

In financial terms, the past 12 months seem to have made a half billion-dollar difference. On Friday, Hitachi announced that it has divested its shares in Hitachi GST to Western Digital for $3.9 billion in cash and 25 million shares of Western Digital common stock valued at $0.9 billion, raising the deal's total value to $4.9 billion. Hitachi owns 10 percent of Western Digital's outstanding shares and a right to two seats on the board of directors.

Pedro Hernandez is a contributor to the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of IT-related websites and as the Green IT curator for GigaOM Pro. Follow him on Twitter @ecoINSITE.

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  This article was originally published on Friday Mar 9th 2012
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