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Rival Disk Drive Makers Seagate, Conner Agree to $1-Billion Merger


Disk drive makers Seagate Technology and Conner Peripherals said Wednesday that they have tentatively agreed to combine in a $1-billion deal that would create the world's largest producer of the unglamorous guts that make computers run.

The announcement was particularly startling to the multibillion-dollar disk drive industry, where such a merger would reunite--at least temporarily--two of the most colorful characters in a business known for colorful characters. And it might mark the end of a feud of 10 years between Alan Shugart, chief executive of Scotts Valley, Calif.-based Seagate, and Finis Conner, chief executive of San Jose-based Conner Peripherals.

"It's a good move for Seagate," said Todd A. Bakar, an analyst with the Hambrecht & Quist investment firm in San Francisco. "On the surface it seems like a fairly odd combination, given that the two companies have maintained a healthy level of competition, or even animosity, over the years."

Seagate and Conner said they have reached an agreement in principle under which Conner shareholders would receive 0.442 share of Seagate common stock for each share of Conner common stock. But the two companies cautioned, in a brief statement, that "there can be no assurance that the parties will enter a definitive agreement regarding any such business combination or that any such business combination will be consummated."

Conner Peripherals jumped $2.125 to close at $19 per share on the New York Stock Exchange; Seagate fell $2 to $45.25 per share.

A Seagate-Conner merger would create an industry giant with combined revenue of $7.7 billion and about a third of the disk drive market worldwide, said Phil Devin, an analyst with Dataquest.

"It's a hot one," Devin said. "There are a lot of synergies between the companies."

James Porter, president of Disk/Trend, a research firm in Mountain View, Calif., said Seagate would get Conner's disk manufacturing operations, which are "the world's most efficient. Seagate is behind in that area--one of the few where they are."

Seagate, which Shugart and Conner founded together in 1979, was a pioneer in developing disk drives, which store data for computers. Seagate makes high-end drives for mainframe and supercomputers, personal computers, minicomputers, workstations and video editing systems.

For the fiscal year ended June 30, Seagate's earnings rose 16% to $260 million and revenue increased 30% to $4.5 billion.

Conner Peripherals was founded in 1986, about a year after Finis (rhymes with "highness") Conner left Seagate in a huff, an incident the two normally outspoken executives are still reluctant to discuss.

Conner, an early producer of 3.5-inch disk drives, grew rapidly and grabbed significant market share. But it has suffered recently from stiff competition and debt from its 1992 acquisition of Archive Corp., a Costa Mesa-based seller of tape drives. Although it is bouncing back, it has been a rumored acquisition target of late, with Samsung as the most frequently mentioned suitor.

For the fiscal year ended Dec. 31, Conner earned $110 million, contrasted with a loss of $445 million the year before, which included charges from the Archive purchase. Conner posted revenue of $2.4 billion, up 10%.

Shugart and Conner are wildly different personalities and analysts speculated that Conner would not remain long with a combined company. Shugart, 64, is a low-key, often gruff engineer credited with attracting talented people to his company. Conner, 52, has been called a marketing genius who favors a lavish lifestyle.

Shugart told Bloomberg Business News that an acquisition of Conner Peripherals is part of an expansion and diversification strategy for Seagate. Seagate has acquired several software firms in the past two years.

As for his relationship with Finis Conner, he said: "There's no animosity between Finis and me. . . . We live 10 blocks apart.

"This will be by far our biggest challenge," Shugart said. "Seagate has shown we are pretty experienced in acquiring companies and assimilating them into Seagate."

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