Seagate Buys Samsung’s Hard Disk Unit In £0.8bn Deal

Storage maker Seagate Technology has acquired the hard disk unit of Samsung Electronics, almost as soon as Samsung put it on the market, in a $1.375 billion (£0.84bn)  deal which gives Seagate 40 percent of the hard disk drive (HDD) market.

Samsung was losing money in hard disks, which are increasingly being replaced by solid state disks (SSDs) memory in devices such as tablets, but Seagate decided to build on an existing partnership in a deal under which Samsung hands the hard disk business to Seagate and guarantees a supply of chips for Seagate’s SSD drives, while Seagate supplies HDDs for Samsung PCs and other devices.

Seagate gains strength in HDDs and SSDs

The combined value of these transactions and agreements is approximately $1.375 billion, which will be paid by Seagate to Samsung in the form of 50 percent stock and 50 percent cash.

Under the agreement Samsung will combine its HDD (hard disk drive) operations into Seagate, and the pair will extend an existing patent cross-license agreement. The deal also includes a NAND flash memory supply agreement under which Samsung will provide Seagate with its semiconductor products for use in Seagate’s enterprise SSDs (solid-state drives), solid-state hybrid drives and other products.

Other aspects of the agreement include a disk drive supply agreement under which Seagate will supply disk drives to Samsung for PCs, notebooks and consumer electronics; expanded cooperation between the companies to co-develop enterprise storage solutions; Samsung receiving equity ownership in Seagate; and a shareholder agreement under which an executive of Samsung will be nominated to join Seagate’s board of directors.

In a joint statement, the two companies said the transactions and related strategic agreements will enable both companies to better align their current and future product development efforts and road maps, accelerate time-to-market for new products, and position the companies to better address rapidly evolving opportunities in markets including, but not limited to, mobile computing, cloud computing and solid-state storage.

In connection with its strategic alliance with Samsung, Seagate expects also to strengthen its relationship with TDK Corporation/SAE Magnetics (H.K.) Ltd.

Together, these transactions and agreements broaden a strategic relationship between Seagate and Samsung that began with a joint development agreement announced in August 2010. Seagate said it expects these transactions and agreements to be accretive to non-GAAP diluted earnings per share and cash flow within the first full year following the closing, and does not expect any material restructuring costs in connection with them.

“We are pleased to strengthen our strategic relationship with Samsung in a way that better aligns both companies around technologies and products,” said Steve Luczo, Seagate chairman, president and CEO. “With these agreements, we expect to achieve greater scale and deliver a broader range of innovative storage products and solutions to our customers, while facilitating our long-term relationship with Samsung.”

Under the terms of the agreement, Samsung will receive consideration consisting of 50 percent of Seagate ordinary shares and 50 percent cash. Upon closing, Samsung will receive Seagate ordinary shares valued at $687.5 million (45.2 million shares, or approximately 9.6 percent ownership of Seagate, which is based on Seagate’s 30-day volume weighted average stock price prior to signing), plus $687.5 million in cash. Samsung will have the right to designate a nominee to join Seagate’s board of directors following closing.

The transactions and agreements also expand Seagate’s customer access in China and Southeast Asia. In addition, the mutual supply agreements enable Seagate to secure a source of NAND flash supply as the company expands its SSD and solid-state hybrid product offerings. The agreement also gives Samsung a significant ownership position in Seagate. The agreement has no financing contingencies, and is subject to customary closing conditions, including review by U.S. and international regulators. The transactions are expected to close by the end of calendar year 2011.

Nathan Eddy contributed to this report