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Monday, May 30, 2011
EU To Inverstigate Acquisitions In The Hard Disk Drive Sector

The European Commission has opened two separate in-depth investigations under the EU Merger Regulation into two proposed concentrations in the hard disk drive sector.

The first transaction concerns the planned acquisition of the HDD business of Samsung by Seagate Technology. The second transaction concerns the planned acquisition of the storage business of Hitachi by Western Digital.

Seagate Technology has said it wants to buy Samsung Electronics's hard disk drive unit for $1.4 billion. Western Digital plans to purchase Hitachi's hard disk drive business for $4.3 billion.

Commission Vice President in charge of competition policy Mr. Almunia said: "Hard drives are the backbone of the digital economy. The sector has already experienced significant consolidation and the proposed acquisitions will further reduce competition. The Commission will carefully examine if effective competition is preserved and innovation encouraged."

The Commission said that its initial market investigation had indicated that both transactions raised potential competition concerns.

There are currently five HDD manufacturers worldwide: Seagate, Western Digital, Hitachi (recently renamed Viviti Technologies) Toshiba and Samsung. A merger between Seagate/Samsung would consolidate Seagate's leading position in the overall market for HDDs, particularly in the manufacture of 3.5" desktop HDDs where it would only face two competitors (Western Digital and Hitachi). The Western Digital/Hitachi transaction, which was examined in the light of the previous deal, would create the world's market leader in the overall HDD market. For 3.5" desktop HDDs in particular, the only competitor would be Seagate/Samsung. For 2.5" mobile HDDs, it would only face Seagate/Samsung and Toshiba.

EU's market investigation also revealed concerns that the combined entity would source fewer heads from the merchant market.

"In combination with the Seagate/Samsung transaction, this may impact TDK's ability to invest in the development of more innovative heads and Toshiba's ability to compete in the HDD market, given its dependence on TDK heads. This could ultimately allow the merged entity to raise HDD prices," the Euroean Comission (EC) said.

EC also underlined concerns that the proposed transaction would reduce the available sources of HDDs to the detriment of ESD manufacturers so as to strengthen the combined entity's leading role in the ESD market. "This could negatively affect competition and innovation in the ESD market,' the EC said.

The Commission will now investigate the proposed mergers in-depth to determine whether the initial concerns are confirmed or not. The opening of in-depth inquiries does not prejudge the final result of the investigations. The Commission now has 90 working days, i.e. until 10 October, to reach final decisions on whether the transactions would significantly impede effective competition to an extent that would be detrimental to customers and consumers in the European Economic Area (EEA).

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