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Western Digital receives EU antitrust complaint on Hitachi deal

August 20, 2011|Bloomberg News

Western Digital Corp. said it received an antitrust complaint from European Union regulators over its purchase of Hitachi Ltd.'s storage business.

"The statement of objections sets out the European Commission's preliminary assessment regarding the combination" and "its potential effects on competition," Western Digital, based in Irvine, said in a regulatory filing Friday. It didn't give details of the EU's complaint.

The commission in May opened in-depth probes into Western Digital's transaction as well as Seagate Technology's separate plan to buy Samsung Electronics Co.'s computer hard-disk drive operations. Seagate said Friday that it didn't expect to get a similar warning for its deal, which was formally notified to EU regulators for clearance a day earlier.

The two transactions would reduce the number of large manufacturers of mechanical hard-disk drives for computers to three from five, leaving Western Digital with 50% of the market, Seagate with 40% and Toshiba Corp. with around 10%, according to researcher IHS Inc.'s iSuppli.

The hard-drive industry "has already experienced significant consolidation and the proposed acquisitions will further reduce competition," Joaquin Almunia, the EU's antitrust chief, said when he announced the in-depth probes.

Being first to notify a deal can bolster its chances of being approved in markets in which the number of companies is relatively small, according to lawyers. That is because each new deal shrinks the number of competitors in the market.

"Where there is a potential parallel deal in the same market, there is a race to the door" for companies to file for merger approval, said Matthew Hall, a lawyer at McGuire Woods in Brussels.

In its May statement the commission said it would examine the Western Digital transaction "taking into account the Seagate/Samsung transaction which was notified first." Seagate's bid would be reviewed "without regard" to the other deal.

Companies doing deals in markets with few players need to be aware that rivals may also be considering mergers that could affect approvals, said Anne MacGregor, a lawyer with Cadwalader, Wickersham & Taft in Brussels.

"Thought should be given to other possible deals out there and their antitrust impact with the European Commission's 'first in, best dressed' policy in mind," MacGregor said.

The Western Digital deal may also harm TDK Corp., the only independent supplier of heads for disk drives, because the combined company would buy fewer of them, the EU said in May.

U.S. regulators are also examining both deals. Western Digital has said it and Hitachi received a second information request from the Federal Trade Commission in April that extended the antitrust review of the deal.

Seagate received a second request from the FTC on May 20. The company said in a filing it was "working cooperatively with the FTC as it reviews the proposed transaction."

Drive makers have slashed prices to compete against flash memory and solid state drive storage. Consolidation among drive makers follows Toshiba's 2009 purchase of Fujitsu Ltd.'s money-losing hard-disk drive business. Toshiba is also the world's second-largest maker of flash-memory chips.

Shares of Western Digital fell $1.42, or 5.1%, to $26.41 Friday.

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