Seagate Buys Maxtor for $1.9 Billion

By Nate Mook, BetaNews

December 21, 2005, 11:09 AM

Hard disk manufacturer Seagate has agreed to purchase rival Maxtor in a deal valued at $1.9 billion. The new company will retain the Seagate name, but it's not clear if Maxtor products will be rebranded. Seagate believes it can help Maxtor cut costs to the tune of $300 million.

Under the terms of the proposed transaction, Maxtor shareholders will receive .37 shares of Seagate common stock for each Maxtor share they own. In total, Seagate shareholders will control 84 percent of the newly combined company while Maxtor shareholders control the other 16 percent.

Maxtor has been struggling recently to increase revenues, which fell from $4.08 billion in 2003 to $3.79 billion last year. The company also swung from a profit of $128 million to a loss of $182 million. Many analysts believe Maxtor's lack of market share in mobile computers and MP3 players has hurt the company.

Seagate, meanwhile, has seen its business booming. Last year the company pulled in $7.55 billion and profits of 707 million. The company has focused on building smaller hard drives for portable devices, like the iPod Mini.

"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 Seagate CEO Bill Watkins.

"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," commented Maxtor CEO Dr. C.S. Park.

The transaction is expected to close in the second half of 2006. Seagate's executive team will continue in their roles while Maxtor's Park becomes a director of the new company.