Irvine-based storage products maker Western Digital Corp. is a step closer to gaining regulatory approval from China’s Ministry of Commerce to integrate its Hitachi Global Storage Technologies Inc. subsidiary there.
The government agency, which has prohibited the integration of the San Jose-based unit since its $4.8 billion sale in March 2012, has indicated it is now “fully focused on considering Western Digital’s application to lift the restriction.”
These steps “represent significant progress” in ultimately bringing Hitachi, its 45,000 employees, and operations around the globe under the Western Digital banner.
Chinese regulators, citing antitrust concerns, have been the last holdouts to approve the merger that had to pass muster around the world with several agencies.
Western Digital is complying with requirements pressed by Chinese regulators related to the organizational structure of the parent and realigning Hitachi ownership.
It paid a $100,000 penalty to implement these resolutions and will likely request a waiver to integrate Hitachi since the two-year moratorium ended March 8.
Lifting the condition “best serves the interests of the company, the industry, the Chinese economy and consumers worldwide,” according to Western Digital.
Integration would have wide-reaching ramifications for the storage industry and Western Digital’s overall position in the market.
The company stands to improve margins and profits, improve sales with uniformed pricing, and save some $400 million in annual costs by cutting redundancies, Robert W. Baird & Co. analyst Jayson Noland told the Business Journal in an interview earlier this year.
He pegged the gain in earnings at $1.50 per share, or roughly $162 million.
Western Digital agreed to a series of conditions to get the initial approval of China’s government, including the Hitachi integration and separate pricing structures of the two units.
The priciest buy in the company’s 44-year history added key corporate customers and an entree into the growing server and storage market, fueling Western Digital’s ascent as the world’s largest drive maker in revenue and unit sales.
Disk drives, which use spinning disks to store and allow access to data, go into computers, external storage devices, corporate networks and consumer electronics, such as DVR players. The emerging business of solid-state drives use chips instead of spinning disks.
Western Digital shares are up 2.8% in afternoon trading to a market value of about $25 billion.
