Original URL: http://www.theregister.co.uk/2012/03/07/wd_hitachi_gst_ftc/

Stop the wedding! WD, Hitachi GST told to wait a day

Loved-up disk spinners ordered to shed weight

By Chris Mellor

Posted in Storage, 7th March 2012 10:43 GMT

In a bare statement after the US stock markets closed on Monday, Western Digital and Hitachi GST announced that their expected 7 March marriage would take place – only one day later.

Western Digital is trying to buy Hitachi GST in a $4.5bn transaction that was attached to a condition that WD would pay Hitachi GST $250m by way of a termination fee if the deal did not close by 7 March.

As the deal would make WD the largest HDD manufacturer and, with Seagate's purchase of Samsung, reduce HDD supply to just three vendors – the other being Toshiba – it sent the anti-competition regulators a-trembling and they fell over themselves to impose conditions to help 3.5-inch drive buyers:

According to Bloomberg, the FTC said it had "approved the $4.5 billion acquisition under a settlement agreement that resolves the competitive issues raised by the transaction and enables Tokyo-based Toshiba to replace Hitachi Global Storage Technologies in the market for desktop hard drives".

Richard Feinstein, director of the FTC's Bureau of Competition, said the settlement would “ensure that vigorous competition continues in the world-wide market for desktop hard disk drives, and that consumers are not faced with higher prices or reduced innovation as a result of this deal".

Toshiba should get everything it needs from WD to enable it to replace Hitachi GST's 3.5-inch HDD production and supply position – meaning production assets and intellectual property – plus WD has to make 3.5-inch drives and sell them to Toshiba until it can make its own.

The aim of avoiding a 3.5-inch HDD duopoly is a good one, but the three regulatory authorities could possibly have got together and worked in unison rather than the three of them working independently.

With WD and Hitachi GST – actually Viviti, a company that owns Hitachi GST – announcing their deal will close on 8 March, we can assume this additional transfer to Toshiba of Hitachi GST 3.5-inch disk assets has been agreed in principle. Toshiba will get Hitachi GST Deskstar and Ultrastar 15K, 7.2K and 5.4K product lines.

The value of Hitachi GST to WD has been reduced by this regulator-imposed 3,5-inch drive salami-slicing, and WD now faces general equality of drive production with Seagate, with each having roughly 40 per cent of total HDD supply and Toshiba the remaining 20 per cent. With the new FTC condition WD could even end up with less than 40 per cent.

Stifel Nicolaus analyst Aaron Rakers thinks the $250m termination fee has been waived by Hitachi GST.

Getting married has surely been a tortuous business for WD and Hitachi GST. ®