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Wednesday, November 23, 2011
Europe Clears Western Digital's Acquisition of Hitachi's Hard Disk Drive Business, Subject To Conditions

Western Digital has secured conditional approval from the European Union's competition regulator to purchase Hitachi's hard disk drive business for $4.3 billion, after it agreed to sell several production operations.

The European Commission (EC) has approved under the EU Merger Regulation the proposed acquisition of Hitachi Global Storage Technology (HGST), a subsidiary of Hitachi of Singapore recently renamed Viviti Technologies, by rival Western Digital. The approval is conditional upon the divestment of essential production assets for 3.5-inch hard disk drives (HDD), including a production plant, and accompanying measures. Western Digital cannot complete the acquisition of Viviti until it has found a suitable purchaser that is approved by the Comission.

"Hard disk drives are a key component of computers and other sophisticated electronic devices as they are used to store a growing bulk of data in the digital economy. The proposed divestiture will ensure that competition in the industry is fully restored before the merger is implemented," said Commission Vice-President in charge of competition policy Joaquin Almunia.

The Commission's examination showed that there are separate worldwide markets for HDDs based on their form factor (3.5-inch or 2.5-inch) and end use (such as desktop computers, mobile computers, consumer electronics devices and enterprise business critical and mission critical applications). The Commission also identified a separate market for external HDDs (or XHDDs), which is downstream from HDDs, in the European Economic Area (EEA) 1.

On the markets for 3.5-inch Desktop HDDs and Consumer Electronics HDDs, the merged entity would only face competition from the recently merged Seagate/Samsung. This is a problem because for security of supply reasons, most customers on these markets multi-source HDD purchases. Toshiba only recently entered the market for 3.5-inch Business Critical HDDs and it is uncertain whether it could replace the competitive constraint presently exerted by Viviti.

To gain regulatory clearance, Western Digital proposed to divest essential production assets for the manufacture of 3.5-inch HDDs, including a production plant, the transfer or licensing of the IP rights used by the divestment business, the transfer of personnel and the supply of HDD components to the divestment business. WD committed not to close its proposed acquisition of HGST before concluding a binding agreement for the sale of the divestment business to a suitable purchaser approved by the Commission.

As a result, the Commission concluded that the proposed merger, as modified by the commitments, will not significantly impede effective competition in the EEA.

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