EC approves Seagate acquisition of Samsung drive business

The European Commission concluded that a merger of the hard disk drive makers will not impede competition

The European Commission approved on Wednesday the acquisition by Seagate Technology of the hard disk drive (HDD) business of Samsung Electronics, after concluding that there will still be enough players in the market after the acquisition.

Seagate said in April that it was acquiring the HDD business of Samsung Electronics for US$1.4 billion in stock and cash, a month after competitor Western Digital said it would buy Hitachi Global Storage Technologies, the hard drive unit of Hitachi, for $4.3 billion in cash and stock.

After the acquisition, Samsung will have about 9.6 percent ownership of Seagate, the companies said in April.

The EC opened in May separate investigations under the EU Merger Regulation into the two transactions. Seagate notified the commission of the proposed acquisition on April 19, a day earlier than Western Digital.

In view of a priority rule based on the date of notification, the commission assessed the Seagate-Samsung transaction on the basis of the market situation existing before the notification of the Western Digital-Hitachi transaction which is still pending.

In 2010, HDD shipments from both Seagate and Samsung added to 261.2 million units, giving the combined companies 40 percent of the HDD market, IHS iSuppli analyst Fang Zhang said in May in a blog post. Western Digital and Hitachi GST still held the number one position with a 50 percent share.

The main impact of the Seagate-Samsung transaction would be on the markets for 3.5-inch desktop hard disk drives and 2.5-inch mobile hard disk drives where the investigation revealed that Samsung is not a particularly strong competitor, the commission said in a statement.

Three strong suppliers would remain in the 3.5-inch desktop market, including the merged entity, Western Digital and Hitachi GST, the commission said. The 2.5-inch mobile market would have these three players and Toshiba.

"With at least three suppliers, customers will retain sufficient possibilities to switch suppliers," the commission said.

The commission also found that the removal of Samsung is not likely to lead to the risk of coordination among the remaining HDD suppliers, and that the proposed acquisition will also not affect the HDD heads business of Japan's TDK, as the merged entity will continue to buy a sufficient volume of components from TDK post-merger.

Western Digital said in May it was informed by the EC that the review of its proposed acquisition had entered a second phase.

The proposed acquisition, which is subject to several closing conditions, including the receipt of antitrust approvals in certain jurisdictions, is now expected to close in the fourth calendar quarter of 2011, Western Digital said. The company had earlier said the acquisition would close in the third quarter.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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Tags Mergers and acquisitionsbusiness issuesstoragehddwestern digitaltdkhitachi GSTSamsung ElectronicsDrivesSeagate Technology

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John Ribeiro

IDG News Service
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