Seagate and Maxtor, producers of hard disk drives from the U.S., announced Wednesday that they had signed an agreement under terms of which the former would acquire the latter. The announcement continues the consolidation trend of hard drive manufacturers and outlines just how complex the business is.

Under the terms of the agreement, which has been approved by the boards of directors of both companies, Maxtor shareholders will receive 0.37 shares of Seagate common stock for each Maxtor share they own. When the transaction is completed Seagate shareholders will own approximately 84% and Maxtor shareholders will own approximately 16% of the combined company. The value of the transaction is approximately $1.9 billion.

Seagate has been gaining market share for the past few quarters, whereas Maxtor’s share recently declined. The combined company, which will work under Seagate’s brand-name, will command approximately 44% of the hard disk drive (HDD) market in the world (based on the Q2 2005 market share data from iSupply), if all goes well, leaving all the rivals much behind. The closest rivals to the new company will be Western Digital (WD) and Hitachi Global Storage Technologies (HGST) with about 17% and 15% market shares respectively. 

Maxtor acquired Quantum, another U.S.-based maker of HDDs back in 2001 and greatly broadened its portfolio of products. However, recently the company began to show signs of weakening, as it abandoned development of 2.5” and 1” HDDs, which might be an indicator for the company’s exit from the business.

Seagate’s executive management team will continue to serve in their current roles. The combined company will retain the Seagate name and executive offices will be located in Scotts Valley, California. Dr. C.S. Park, chairman of Maxtor, will become a director of Seagate upon the closing of the transaction.

The transaction is expected to be completed in the second half of calendar 2006, subject to obtaining shareholder approvals and customary regulatory approvals. There is a termination fee of $300 million payable to Maxtor under certain conditions. The transaction is intended to be tax-free to Maxtor shareholders. Prior to the closing, Seagate and Maxtor will operate as separate businesses.