EU begins investigating Seagate's and Western Digital's HDD acquisitions

By on May 31, 2011, 12:26 AM

EU regulators opened in-depth probes today into two takeover bids in the hard disk drive market involving two Asian and two US companies: Western Digital buying Hitachi Global Storage Technologies (GST) and Seagate buying Samsung Electronics' HDD unit. The EU is concerned the deals would reduce the number of rivals.

"Hard drives are the backbone of the digital economy," EU competition commissioner Joaquin Almunia said in a statement announcing the investigation. "The sector has already experienced significant consolidation and the proposed acquisitions will further reduce competition."

Western Digital announced in March 2011 its intentions to buy Hitachi GST in a cash and stock deal valued at about $4.3 billion. Under the terms of the agreement, Japan's Hitachi will sell its wholly owned HDD business for $3.5 billion in cash and 25 million Western Digital common shares valued at $750 million, based on a stock price of $30.01.

Seagate Technology announced in April 2011 its plan to buy Samsung's HDD business for $1.375 billion in cash and stock. In addition, the companies will enter into a NAND flash memory supply agreement under which Samsung will provide Seagate with its NAND flash memory chips for use in Seagate's enterprise SSDs, solid state hybrid drives and other products.

The Seagate and Samsung deal would consolidate the US company's position in the HDD market, leaving only two rivals, Western Digital and Hitachi. The Western Digital and Hitachi transaction would result in only one company competing in desktop HDDs and just two rivals in mobile HDDs, according to the EU Commission.

The original deadlines for a decision on the deals were both this week: Seagate-Samsung on Monday and WD-Hitachi on Tuesday. The Commission has now delayed its decision whether to clear or block the two deals to October 10, 2011.




User Comments: 20

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Guest said:

havent the EU go better things to do?

gwailo247, TechSpot Chancellor, said:

How does the EU have oversight over US and Asian companies?

Archean Archean, TechSpot Paladin, said:

I am kind of getting tired of reading about EU sticking its dirty nose in everything. If two 'stronger' competitors are buying two 'weaker' players it is not bad at all, because IMO bother of the weaker players were in dire straits anyway.

Cota Cota said:

@Archean well the real deal in here is that those 2 companies are more closer to becoming monopolies, specially since Seagate will have full market on desktops HDD's, now i dont mind having pure Seagate's HDD's in my PC but i do mind how those piggy big guys will take the prices, not the Seagate developers/workers but the guys in charge of getting money.

We may have two alternatives (HDD's & SSD's), wich puts more names on the "storage devices" table, but trying to mix those two to fit in the same category isnt possible. Looking forward on this one

Archean Archean, TechSpot Paladin, said:

Okay, then will EU be willing to invest in the two acquired entities, so they go underwater?

My view point is, one should be vigilant but judicious when reviewing such mergers.

Guest said:

First, those companies are making sales in the EU, and this allow EU anti-trust authority to investigate the consequences of such mergers.

Second, the point is not to interfere with any business area nor to make weak-companies-making-bad-decisions to survive.

Nevertheless, history shows that when one activity is controlled by only 2 to 4 companies (1 being communism system) those ones stop acting as competitors and just make sure to freeze their market shares while overcharging the customers.

Thus, those companies can make "abnormal profits" (see Schumpeter) which allow them either to make huge R&D investments (good for customers) or to buy any young-innovative-competitor or young-lowcost-competitor(not that good for customers).

fpsgamerJR62 said:

It's a fine line between regulation of business practices to protect the interest of consumers and regulation which becomes an impediment to economic progress and innovation. I trust that the EU authorities will be able to discern the difference between the two. Consolidation in the HDD sector has already been going on for a while and if it leaves only 2 major players in the industry then it is just a result of the workings of a free economy. In my opinion, the two recent developments were more of Hitachi and Samsung selling off less profitable product lines rather than Western Digital and Seagate trying to buy up their smaller competitors.

TekGun TekGun said:

Well I can't see what they can do about it really, or there being much of a problem with only two major players producing HDD's, we now have SSD's, which are continuing to drop in price and many companies producing these.

Besides how many companies make graphics cards?

Burty117 Burty117, TechSpot Chancellor, said:

tekgun said:

Besides how many companies make graphics cards?

Very good point sir, I have never thought about it before? but ATI and Nvidia are definately battling it out for market share! hell we get some pretty good products from both party's alot of the time, maybe this will turn into the same? 2 HDD vendors poor money into R&D and start producing 10,000 RPM HDD's at 10TB! (dream over)

Guest said:

LAME! Let them have at it. If the competition is too small than get over it. Guess what, PC and Mac is the same general idea. Besides I want those Hybrid drives :D

Guest said:

Both Companies do business in the EU. China also has a say in the deal as well.

gobbybobby said:

The EU will not allow companys to become monopolies. Business is changing, gone are the days where you can buy buy buy, the EU will break companys up and essentialy force competition, which is only a good think for the consumer. The eurozone is a huge market and the EU have the power to essentialy ban these companys from selling products here. (I am in UK)

Which may reduce competition further, no company in there world would simply stop selling HDDs to the Eurozone, (would they?)

Archean Archean, TechSpot Paladin, said:

Both Hitachi and Samsung were in precarious position, so at their own, I don't think they would have survived for too long, perhaps resulting in outright closure of HDD divisions of each company. So I don't think EU would bother with 'funding' these loss making units.

Beside, what is happening right now, is going to shape future of EU, I think if Greece/Iceland showed courage and said no to what EU wants, others will probably start thinking about it as well. One very good reason for doings so is to get back their financial 'independence' from the clutches of financial wizards + EU bureaucrats.

gwailo247, TechSpot Chancellor, said:

I guess the real question is whether the EU needs hard drives more than these two companies need to sell them there. It would be interesting to see these two companies go ahead with the merger and wait for the EU to make their move.

I understand the EU's desire to ensure fair business dealings, but considering that none of the companies involved are European, they frankly have no business in telling them who they can or can't buy. If they find evidence of price fixing after this happens, they can fine the shit out of them, but preemptively this is a bit too much interference.

Guest said:

The future are SSDs, and today buying of these HDD's plants can be una bad operation...

I bet, SSDs will replace HDDs on less time than most think...

For Seagate and WD, this will be a productive business adquisition only for 3 to 5 years... no more.

TekGun TekGun said:

gobbybobby said:

The EU will not allow companys to become monopolies. Business is changing, gone are the days where you can buy buy buy, the EU will break companys up and essentialy force competition, which is only a good think for the consumer. The eurozone is a huge market and the EU have the power to essentialy ban these companys from selling products here. (I am in UK)

Which may reduce competition further, no company in there world would simply stop selling HDDs to the Eurozone, (would they?)

If the EU manage to stop WD and Seagate buying the other two companies what will that achieve? They can't make Samsung and Hitachi keep making HDD's, they want out.

Maybe they will force them to sell up for less to other companies, if they can find someone who wants to take on a technology which is soon going to be more or less phased out, or at least diminished due to the advances and advantages of flash technology.

Guest said:

Wow, so Intel and AMD are doing it the wrong way?. Reducing Rivals? Come on, do something more worthy of your time EU.

Guest said:

I hope you realize that if there is less competition then the prices will go up. and how can you tell EU to stop sticking their nose into things, when we do it all the time...

PinothyJ said:

tekgun said:

Well I can't see what they can do about it really, or there being much of a problem with only two major players producing HDD's, we now have SSD's, which are continuing to drop in price and many companies producing these.

Besides how many companies make graphics cards?

By which I assume you mean GPUs and whilst you may have a point, I do not think it is valid in this instance. These HDD companies produce the same product whilst NVIDIA and AMD are produces of different products. In order for the EU or ACCC or the American or Asian equivalents to force good competition they would need to somehow make one of the smaller producers take more of a market share of the different GPU types. The HDD market is different in they are all, for the most part, the same. 3.5", 2.5", internal, external, SSD, mechanical, NAS, et cetera.

I say good on the EU...

Guest said:

One thing many people are not looking or thinking about are the other parts that go into a drive and the amount of companies that would be affected by these mergers. Samsung is a big user of TDK heads and if Seagate now owns Samsung then TDK would loose it's business from Samsung and would probably not survive.

Look Hitachi HDD business was not in dire straights as one poster commented. In fact they were just the opposite. They have been making money the last couple years and even shown better profit margins then WD or Seagate. Hitachi HDD business was very well positioned for the future as they are developing SSD drives, have Server drives and are doing very well in 2.5" laptop drives.

Why do oyu think WD is trying to buy them? WD has virtually no SSD product, No Server product and are a small player in the 2.5" market. They are very big in the 3.5" market and are very big in the external storage market. That is were they are making their money. EU needs to look very carefully at this as this. WD and Hitachi are both 2 companies doing well right now so why do they need to consolidate?

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