Shares of Irvine’s Western Digital Corp. soared on Monday on the announcement that it’s set to buy Northern California’s Hitachi Global Storage Technologies Ltd., a move that will make it the undisputed top disk drive maker.
Investors sent Western Digital’s shares up more than 15% Monday to a market value of $8 billion, despite the deal’s big price tag and 60% debt component.
Western Digital is set to pay $4.3 billion in cash and stock for San Jose-based Hitachi GST, as the company is known.
Japanese parent Hitachi Ltd. is set to get a roughly 10% stake in Western Digital and two board seats.
The deal is expected to close in the third quarter.
Western Digital said it plans to fund the deal with a combination of cash and some $2.5 billion in debt.
The deal is expected to immediately add to earnings, after onetime costs.
Steve Milligan, president and chief executive officer of Hitachi GST, is set to join Western Digital as president, reporting to Chief Executive John Coyne.
“The acquisition of Hitachi GST is a unique opportunity for Western Digital to create further value for our customers, stockholders, employees, suppliers and the communities in which we operate,” Coyne said in a statement. “We believe this step will result in several key benefits—enhanced R&D capabilities, innovation and expansion of a rich product portfolio, comprehensive market coverage and scale that will enhance our cost structure and ability to compete in a dynamic marketplace.”
The deal is set to give Western Digital a clear lead with more than 50% of the market for disk drives, which get built into computers, servers, portable storage devices and consumer electronics.
At the end of 2010, Western Digital had 31% of the market for disk drives, according to data from El Segundo-based market researcher iSuppli Corp., a unit of Colorado’s IHS Inc.
Its closest rival is Scotts Valley-based Seagate Technologies LLC, which ended the year with 29.7% market share.
Rounding out the market was Hitachi GST at 17.6% market share.
Despite selling fewer drives, Seagate has ruled by revenue. More of its sales come from pricier drives for high-end servers, desktop PCs and other corporate computers.
Seagate sold $11 billion worth of disk drives in 2010, up 9% from 2009.
Western Digital sold nearly $10 billion in drives, up 19%.
Adding Hitachi stands to make Western Digital the leader by both units shipped and revenue.