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Western Digital gets China's nod to gobble Hitachi GST

But devouring delayed by two years

Internet Security Threat Report 2014

Western Digital has gained China's approval for its Hitachi GST acquisition, but the integration of the two cannot take place for two years.

Western Digital and Hitachi GST have agreed the acquisition but both EU and Chinese anti-competition regulators have had concerns, delaying their approval of the deal. WD and Toshiba have done a deal concerning 3.5-inch drive capacity to meet EU regulatory concerns.

Stifel Nicolaus analyst Aaron Rakers has seen a translated version of the Ministry of Commerce of the People’s Republic of China (MOFCOM) announcement of its conditional approval of the WD-HGST combination.

He said the conditions are:

  • The maintaining of HGST (Viviti) at the capacity of its pre-transaction state including research and development, production, procurement, marketing, sale, administrative, and other roles.
  • HGST to continue to produce its existing production lines and maintain its production/sales teams.
  • The implementation of firewalls (Chinese walls!) to ensure no exchange of competitive information between WD and HGST.
  • Monthly reporting of production capacity and output to the supervision of a trustee.

Western Digital has a week to submit a detailed operating plan reflecting these conditions to China's Ministry of Commerce. The conditions will be in place for 24 months, unlike similar conditions China imposed on Seagate's Samsung acquisition, which will be in place for 12 months.

Rakers indicates this is a positive move in terms of WD completing the HGST acquisition by 7 March – any later and it triggers a $250m termination payment by WD to HGST.

El Reg wonders why the Chinese bureaucrats are bothered to this extent. Why are they adding cost to WD's post-acquisition period and limiting its opportunities to increase manufacturing efficiency by integrating all the HGST and WD plants and having single R&D facility?

Sure, MOFCOM, seems to be saying, WD and HGST can get married: but no bonking and no kids for two years, and no living in one home. HGST's salary can be paid in to WD's bank account, but that's all. You can't go on holiday together, sleep together, eat together or plan your future together – and don't complain or the trustee will smack your wrists and delay things even more.

Who are these people in MOFCOM, these anti-competitive practices regulators? On the one hand China is trying to gain and benefit from monopolies in the supply of graphite and rare earths, and on the other hand it's trying to regulate HDD supply so that consumers won't be adversely affected by a concentration of suppliers. ®

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