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Tuesday, March 06, 2012
FTC Requires Western Digital to Sell Off Assets in Acquisition

The Federal Trade Commission will require Western Digital (WD) to sell assets used to manufacture and sell desktop hard disk drives to Toshiba as part of a proposed settlement that resolves charges that WD's proposed acquisition of rival Hitachi Global Storage Technologies Ltd. would likely have harmed competition in the market for desktop hard disk drives used in personal computers.

The proposed FTC order settles charges that the deal as originally proposed would have left only two companies, Western Digital and Seagate Technology LLC, in control of the entire worldwide market for desktop hard disk drives.

"Protecting competition in the high-tech marketplace is a high priority for the FTC," said Bureau of Competition Director Richard Feinstein. "This order will ensure that vigorous competition continues in the worldwide market for desktop hard disk drives, and that consumers are not faced with higher prices or reduced innovation as a result of this deal."

Under an agreement dated March 7, 2011, Western Digital intends to acquire Hitachi Global Storage Technologies (now known as Viviti Technologies Ltd.) from Hitachi, Ltd. for approximately $4.5 billion.

According to the FTC's complaint, Western Digital's proposed acquisition of Hitachi Global Storage Technologies would likely be anticompetitive and would violate Section 5 of the FTC Act and Section 7 of the Clayton Act by reducing competition in the worldwide market for desktop hard disk drives. The FTC contends that the deal would reduce the number of competitors in that market from three to two and would likely allow Western Digital to exercise market power, resulting in higher prices for consumers.

The proposed settlement order remedies these competition concerns by requiring Western Digital to divest selected Hitachi Global Storage Technologies assets related to the manufacture and sale of desktop hard disk drives to Toshiba within 15 days of the acquisition.

According to the FTC, Toshiba has the ability to replace Hitachi Global Storage Technologies as an effective competitor in the worldwide market for desktop hard disk drives. While Toshiba currently does not compete against Western Digital or Hitachi Global Storage Technologies in this market, it does make and sell hard disk drives for use in mobile and other end-use applications. Because Toshiba has extensive experience manufacturing these other types of hard disk drives, and has an existing worldwide infrastructure for the research, development, and sale of desktop hard disk drives, Toshiba is well-positioned to replace the competition that will be eliminated as a result of the proposed transaction.

Under the proposed settlement order, Toshiba will receive all of the productive assets needed to replicate Hitachi Global Storage Technologies' position in the desktop hard disk drive market. In addition, the settlement order requires Western Digital to provide Toshiba with access to its employees involved in research and development and the production of desktop hard disk drives, and also requires Western Digital to license all intellectual property needed to make and supply desktop hard disk drives to Toshiba. The settlement order also requires Western Digital to be available to supply Toshiba with certain components Toshiba will need to run the desktop hard disk drive business it acquires, and to contract manufacture hard disk drives for Toshiba until Toshiba is able to manufacture them on its own. The FTC also has appointed a monitor to oversee the sale of the assets to Toshiba and to keep the Commission informed about the status of the required divestiture.

Western Digital announced last Tuesday that it had reached an agreement to sell off assets to competitor Toshiba as a way to address regulatory concerns. The agreement will enable Toshiba to manufacture 3.5-inch hard drives for the desktop and consumer electronics markets and will allow Toshiba to expand its manufacturing of 3.5-inch drives for the near-line storage market, Western Digital said then.

Western Digital also announced that it has agreed to purchase Toshiba Storage Device (Thailand), a hard drive manufacturing division that suspended operations after massive flooding in the country in 2011.

The Toshiba transactions are conditional on Western Digital's closing of the Hitachi deal, the company said.

The Commission also issued a separate statement explaining the relationship of its analysis of the proposed acquisition by Western Digital of Hitachi Global Storage Technologies to the earlier acquisition by Seagate Technology LLC of Samsung Electronics Co. Ltd.'s hard disk drive assets, a transaction that the Commission cleared without taking action in December 2011.

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