by Anton Shilov
12/02/2010 | 06:25 PM
Seagate Technology did not only cancel all the negotiations about going private with private equity firms, but also rejected a takeover proposal from its arch-rival Western Digital, according to market rumours. The combination could have created the world's largest maker of hard disk drives (HDDs) with over 60% market share, the Intel Corp. of the storage market.
TPG Capital, a private equity firm, reportedly offered Seagate's shareholders over $7.5 billion for the company, which was a more or less fair deal, given the market capitalization of around $6.5 billion in late November. But Western Digital proposed to pay 10% to 50% more than TPG, according to Bloomberg news-agency, which cites its sources with knowledge of the matter.
The combination of Seagate and WD would have created the Intel of the hard drive industry with over 60% unit and value market shares, provided that the companies could integrate properly into each other. Unfortunately, the newly-formed company would have run into problems with antitrust organizations around the world and the consolidated HDD giant would have also experienced issues with overlapping product lines.
"There’s way too much product overlap, and I’m not sure the premium would be meaningful enough to make it worth it. I think they have to make a go of it on their own," said Ashok Kumar, an analyst at Rodman & Renshaw LLC.
In fact, consolidation of hard drive companies may not be the most important thing for manufacturers of hard drives. Solid-state drives (SSDs) are getting more affordable and suppliers of SSDs are getting more powerful. As a result, many of such companies can not only offer high-quality flash-based drives for enterprise customers, but also develop technologies that will make those SSDs even more reliable. This is a direct threat for lucrative enterprise HDD businesses of all the manufacturers. Moreover, as the demand towards personal computers increases, hard drive makers may need to concentrate on every-day management rather than on potential consolidation.
"The consolidation wave has run its course. The only thing that will keep pricing stable and profits moving in the right direction is more rational production levels," said Mr. Kumar.
Neither Seagate nor Western Digital commented on the news-story.