Irvine-based disk drive maker Western Digital Corp. has laid out plans to use stock, cash and debt for its pending $4.3 buy of Hitachi Global Storage Technologies Ltd.
The purchase of San Jose-based Hitachi GST, as the company is known, is set to close in the third quarter. It’s expected to make Western Digital the dominant maker of disk drives.
Western Digital plans to finance the deal with $1 billion in cash, $2.5 billion in borrowing and 25 million of its shares valued at about $750 million.
Bonds issued for the acquisition are expected to be considered investment grade, according to Chief Financial Officer Wolfgang Nickl.
THE NEWS:
Western Digital prepares to pay $4.3 billion for Hitachi GST, with debt making up about 60%
BACKGROUND:
Purchase would bring added sales of profitable drives for corporate customers
WHAT’S AHEAD:
Deal expected to close in second half of year, cement Western Digital’s market share lead
They’re expected to run for five years, with half of the principal paid over that time and the balance due when the bonds mature, he said.
The debt is set to be issued after the acquisition closes, according to Nickl.
Western Digital doesn’t plan to have bonds rated. It plans to sell them through a syndicate of banks.
The company had $200 million in long-term debt as of April 1.
Western Digital’s customers—which include Dell Inc., and other computer and consumer electronics makers and retailers—see the acquisition as positive, Chief Executive John Coyne told analysts and investors on a recent conference call.
The company’s drives go into computers, servers and consumer electronics.
Coyne said he expects the deal to bring economies of scale in an industry where profits are slim and volume is key. Western Digital expects to pass along lower costs from the acquisition “to enable (customers) to grow their markets,” he said.
The company leads key rival Scotts Valley-based Seagate Technologies LLC in market share by number of drives shipped but trails on revenue.
The Hitachi buy stands to make Western Digital the undisputed drive leader by any measure. The deal is expected to take the company’s market share to 49%, up from 31% now.
The move prompted Seagate to offer $1.4 billion for Samsung Electronics Co.’s disk drive business last month.
The buy would give Seagate added market share and access to Samsung flash memory chips used in new solid state drives that use chips instead of spinning disks to store data.
Adding Samsung’s drive business would give Seagate about 40% of the market, up from about 30% now.
The addition of Hitachi stands to bring more revenue and profits for Western Digital. It’s set to bring more sales of drives for corporate networks—the most profitable part of the industry.
For the three months through March, Western Digital reported $2.25 billion in sales, down 14.7% from a year earlier and in line with analysts’ expectations based on industry trends.
The company fell slightly short of profit expectations at $146 million, down 64% from a year earlier. Wall Street had expected $150 million in profits.
Western Digital saw a smaller decline in the number of drives sold in the March quarter at 50 million, down 2% from a year earlier.
The company held its market share lead over Seagate, which shipped 49 million drives in the most recent quarter.
For the current quarter, Western Digital projects revenue of $2.2 billion to
$2.25 billion, in line with Wall Street expectations.
Adjusted profits are projected be $139 million to $150 million.
Analysts expect adjusted profits at the high end of the company’s forecast.
