Consolidation is afoot in the hard-disk drive industry.
Almost exactly a year ago to the day, hard drive titan Western Digital (NYSE: WDC ) announced its intention to acquire the data storage business unit of Hitachi (NYSE: HIT ) . A mere month later, rival Seagate (NYSE: STX ) similarly stated that it would take Samsung's HDD business off of the South Korean conglomerate's hands.
Late last year, Seagate and Sammy sealed the deal, giving Samsung a sizable 9.6% stake in Seagate along with a board seat nomination. Western Digital and Hitachi have now closed the acquisition after clearing antitrust regulatory muster. As a condition to earn regulators' seal of approval, Western Digital will set up two separate subsidiaries to operate under separate brands and products.
The deal includes $3.9 billion in cash and 25 million shares of Western Digital shares worth about $900 million, which gives Hitachi a roughly 10% stake in Western Digital. On top of that, Hitachi has the right to designate two directors to Western Digital's board. Sounds awfully familiar, doesn't it? Western Digital financed a sizable chunk of that cash portion with a $2.3 billion loan, but expects to maintain a positive net cash position.
Overall, the deal is worth about $4.8 billion, and Hitachi will recognize a nice gain of about $2.4 billion on the transaction. This will benefit the company significantly, as the Japanese conglomerate has been looking to lose a little weight recently.
Western Digital expects the deal to be immediately accretive to non-GAAP earnings, which excludes pesky acquisition-related expenses, restructuring charges, and amortization of intangibles. In other words: If you ignore all the costs of the deal, it looks great!
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