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Subject:  WDC up 15.5% Date:  3/7/2011  4:11 PM
Author:  TMFGebinr Number:  263 of 1287

Hi everyone,

Western Digital announced that it's buying the disk drive portion of Hitachi (HGST) for about $4.3 billion in a cash + stock deal. $3.5 billion in cash and 25 million shares (at $30.01 each or $750 million), leaving Hitachi owning about 10% of Western Digital and giving them two board seats.

Somewhat unusually as acquirer, Western Digital's stock shot up on the news. It eliminates one of its big rivals, reducing the field from five to four players (Seagate, Samsung, and Toshiba being the other three).

An interesting provision is that Western Digital is not taking any of HGST's debt in the purchase.

One point that came up in a couple of the analyst questions during the call was market share loss. Western Digital expects a bit of share loss form the combination, but management wasn't willing to put a number on it. Consistently answered that it would be up to customers on whom they buy from for best deal and keeping competition high.

All in all I think this is going to work out pretty well for Western Digital. It has one less competitor to worry about, one less source of HDD overcapacity, and becomes the undisputed leader in the HDD space. I agree with management when they say that, essentially, all the digital content both on and off the web has to be put somewhere, and that is going to be on disk drives.

A bright spot in an otherwise down day.

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