Seagate Buys Maxtor for $1.9B

Rivals stand to gain $300M in savings in first year of the merged entity’s operation.

Hard drive manufacturer Seagate Technology said on Wednesday it will acquire rival Maxtor for $1.9 billion in stock.

Maxtor shareholders will receive 0.37 shares of Seagate stock for each Maxtor share they own. Seagate shares opened at $19.60 on Wednesday, while Maxtor shares opened at $4.52. That means Maxtor shareholders will get $7.25 per share, a 60 percent premium on their Maxtor shares.

The boards of directors of both companies have approved the proposed deal, which will give 16 percent of the combined company to Maxtor shareholders. Seagate shareholders will own 84 percent of the company.

Maxtor of Milpitas, California, manufactures hard disk drives used in PCs made by manufacturers such as Dell and Hewlett-Packard. The company also has a very strong retail presence. Its drives can be found in a number of consumer electronics products.

Savings on Expenses

The combined company expects to gain approximately $300 million of annual operating expense savings in connection with the transaction after the first full year of integration.

“We believe that there is significant cost savings available here,” said Seagate CEO Bill Watkins. “It’s about scale on both the operating and engineering sides. The intent is to maintain all of the revenue as it is and take advantage of future growth.”

The merged company will take the Seagate name, and the current Seagate management will run the company. Dr. C. S. Park, Maxtor’s chairman and chief executive, will become a director of the new Seagate, which will continue to head operations from Scotts Valley.

The transaction is expected to be completed in the second half of calendar 2006, subject to obtaining shareholder approvals and 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.