X-bit labs

Iomega Becomes Hard Drive Manufacturer by Acquiring ExcelStor.

Category: Storage

by Anton Shilov

[ 12/12/2007 | 10:59 PM ]

Iomega, a supplier of various storage solutions, announced on Wednesday that it would acquire ExcelStor Great Wall Technology, a tiny maker of hard disk drives. The transaction will let Iomega to boost its revenues and potentially increase profitability going further.

ExcelStor designs, develops, manufactures and provides advanced digital storage technologies. Their principal product lines include hard disk drives (HDD), security storage and external storage. ExcelStor manufactures certain of Iomega’s external HDD products and has manufactured Iomega’s REV products since 2004. ExcelStor markets its products primarily to OEMs as an electronics manufacturing services provider and also sells its own ExcelStor-branded products through distributors throughout the world. ExcelStor produces more than 20 million HDD-based devices per year. For its fiscal year ended December 31, 2006, ExcelStor had revenue of $707.1 million (audited in accordance with U.S. GAAP). For the six month period ended June 30, 2007, ExcelStor had revenue of $371.3 million (U.S. GAAP).

ExcelStor is a subsidiary of Great Wall Technology Company Limited (GWT), a publicly traded company on the Hong Kong Stock Exchange, headquartered in Beijing, China, which had 2006 revenue of $2.6 billion. GWT is engaged in the development and manufacturing of communication products, including computers and related components, portable terminals, software and systems integration, broadband networks and value-added system services.

GWT is an indirect subsidiary of China Electronics Corporation (CEC), a PRC Government-owned information technology conglomerate which controls more than sixty second level subsidiary companies primarily engaged in the areas of computer and component manufacturing, integrated circuit design and manufacturing, software development and systems integration, telecommunications, consumer electronics design and manufacturing. CEC’s affiliates had 2006 revenue of approximately $16 billion.

“We expect the transaction to be accretive to our bottom line, and the combined company is expected to have more than $1 billion in annual revenue for 2007 and approximately 3000 employees worldwide. We are excited about our potential to combine the vast computer and consumer electronics product development and manufacturing capabilities of ExcelStor with our global brand and sales channels, our 27 years of experience building a successful company in the Americas and Europe, and also the opportunity for the combined company to partner with GWT and CEC’s other China-based affiliates to address worldwide markets,” said Jonathan Huberman, chief executive of Iomega.

Iomega will issue approximately 84 million shares of common stock in Iomega in exchange for all outstanding ExcelStor common shares, representing in the aggregate 60% of the fully diluted capitalization of Iomega, to be measured as of the closing date. The boards of directors of both Iomega and ExcelStor have unanimously approved the share purchase agreement. Upon closing the transaction, GWT and its affiliates will hold approximately 43% of Iomega’s common stock, making GWT the largest Iomega shareholder. CEC indirectly owns 62% of GWT.

“We expect to be an integral part of the CEC family and therefore accelerate our growth in our core Americas and European markets and obtain significantly greater access to the China market. Our ultimate goal is to build a thriving global leader in computer peripherals and other consumer electronics products,” added Mr. Huberman.

For at least two years after closing, it is expected that the Board will be comprised of five directors nominated by ExcelStor or its owners and four directors nominated by Iomega. Worldwide corporate headquarters will remain in San Diego, California.

The transaction is subject to various closing conditions, including approval by PRC Government and other applicable regulatory authorities (including Exon-Florio), expiration of waiting periods under the HSR Act and any applicable non-US antitrust laws, approval of the acquisition by Iomega and GWT stockholders, and other customary closing conditions. The transaction is expected to close in approximately six months, or mid-2008. Until the transaction is completed, both companies will continue to operate their businesses independently. Following the acquisition, it is intended that ExcelStor will operate as a wholly-owned subsidiary of Iomega.