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Western Digital buys up Read-Rite assets

Bankruptcy sale

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Hard drive maker Western Digital has acquired "substantially all" of the assets of bankrupt hard drive one-time market leading magnetic read-write head developer Read-Rite, the company said today.

The purchase, approved by the bankruptcy court this week, covers Read-Rite's Fremont, California wafer fab and includes an option to buy its Thailand manufacturing facility. That plant is currently under the shadow of $62 million worth of un-negotiated debt obligations.

WD will pay $95.4 million for the Fremont fab and Read-Rite's intellectual property. The purchase will be funded out of working capital, it said. Read-Rite also has a factory in the Philippines, but WD has not explicitly stated that it's included in the deal.

Read-Rite filed for bankruptcy on 17 June, seeking Chapter 7 protection. Unlike the much more widely known Chapter 11, which guards a company against its creditors, typically while a final rescue plan is put into place, Chapter 7 is essentially an acceptance that the end is nigh. After filing for Chapter 7, most companies go on to sell off their assets.

Read-Rite ran into trouble early in 2002 when the company's heads proved not to work to well in 40GB-per-platter drives. Hard drive makers turned away from the company, and its cash quickly began to drain away. Its 2002 fiscal year saw a 63 per cent drop in revenue from which the company never recovered.

Last December, the company negotiated a $30 million loan and put 60 per cent of its Fremont workers on enforced vacation to protect its cash flow. The move wasn't enough, forcing it to given even more staff holiday time. Last month, it was forced to admit that it had defaulted on the December loan, and the Chapter 7 filing followed soon after.

Read-Rite was founded in 1981 by a team of ex-Memorex staffers and went on to become one of the world's largest independent operations in its field.

WD's interest is in Read-Rite's R&D and ability to manufacture products derived from it. Specifically, the company said that "the planned acquisition is aimed at improving its access to recording head technologies over the long term and increasing its operational flexibility".

The transaction is expected to close within ten days, subject to the terms of the sale order issued by the bankruptcy court. ®

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