Seagate
(NYSE: STX) and Maxtor (NYSE: MXO) today jointly announced they have
entered into a definitive agreement under which Seagate will acquire
Maxtor in an all stock transaction. Under the terms of the agreement,
which has been unanimously approved by the boards of directors of both
companies, Maxtor shareholders will receive .37 shares of Seagate
common stock for each Maxtor share they own. When the transaction is
completed Seagate shareholders will own approximately 84% and Maxtor
shareholders will own approximately 16% of the combined company. The
value of the transaction is approximately $1.9 billion.
The combination of Seagate and Maxtor will build on Seagate’s
foundation as the premier global hard disc drive company, leveraging
the strength of Seagate’s significant operating scale to drive product
innovation, maximize operational efficiencies, and realize significant
cost synergies. These capabilities will enable the combined company to
compete more effectively as the highly competitive data storage
industry addresses the challenges and opportunities for significant
growth that lie ahead. The combined company will be well-positioned to
accelerate delivery of a diverse set of compelling and cost-effective
solutions to the growing customer base for data storage products.
The combined company is expected to generate significant synergies,
and the transaction is expected to be at least 10-20% accretive to
Seagate on a cash EPS basis after the first full year of combined
operations. As with other past combinations of disc drive
manufacturers, revenue attrition is anticipated to result from this
combination. Synergy estimates take into account anticipated revenue
attrition. It is estimated that the incremental revenues will generate
gross margins that are in line with the high end of Seagate’s
stand-alone model. In addition, the combined company expects to achieve
approximately $300 million of annual operating expense savings in
connection with the transaction after the first full year of
integration.
“Seagate is excited about the opportunity to achieve greater scale,
reduce supply chain costs, and leverage combined R&D efforts across
a broader product set. With the increased scale of the combined
company, we can reduce overall product costs and provide more
innovative products at more competitive prices,” said Bill Watkins,
Seagate CEO. “We believe this is a strategic combination that will
provide value for our shareholders as well as benefits for our
customers.”
“We believe this combination offers an exciting opportunity for our
two companies to come together in a transaction that maximizes value
for our stockholders, through the combination of an attractive premium
and through future value enhancement of the combined company’s
operations,” said Dr. C.S. Park, Maxtor chairman and CEO. “Together, we
will leverage our combined technical resources to deliver to our
customers an even more compelling and diverse set of products, and get
them to market more quickly and cost effectively.”
Steve Luczo, Seagate chairman, said "Seagate's board of directors
is very enthusiastic about this unique combination and believes it will
provide value for shareholders of both companies. This transaction has
significant strategic and financial benefits, and the combined company
will be better positioned to anticipate and serve the needs of the
global customer base in the highly competitive data storage market."
Seagate’s executive management team will continue to serve in their
current roles. The combined company will retain the Seagate name and
executive offices will be located in Scotts Valley, California. Dr.
Park will become a director of Seagate upon the closing of the
transaction. Seagate’s chairman, CEO, executive vice presidents, and
the principal equity investors affiliated with certain of Seagate’s
Directors have committed to vote their shares in favor of the
acquisition.
The transaction is expected to be completed in the second half of
calendar 2006, subject to obtaining shareholder approvals and customary
regulatory approvals. There is a termination fee of $300 million
payable to Maxtor under certain conditions. The transaction is intended
to be tax-free to Maxtor shareholders.
Prior to the closing, Seagate and Maxtor will operate as separate businesses.
Seagate's previously announced outlook for the December quarter of
$2.2 billion in revenue and earnings per share in the range of
$0.53-$0.57, excluding non-cash stock based compensation, remains
unchanged. Additionally, Seagate confirms its recently announced
guidance for fiscal year 2006 earnings per share outlook of
approximately $2.00, excluding non-cash stock based compensation.
News Source: Seagate Press Release
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