Western Digital Signs US$1 Billion Acquisition Deal with Komag

July 2, 2007: In a joint statement on Friday, the two announced that Western Digital will be acquiring the media manufacturer, enabling it to deliver cheaper drives and lock the competition out of a significant platter manufacturer.

In a cash tender offer, Western Digital will pay US$32.25 per share of Komag stock for a total of roughly US$1 billion. Following the acquisition Komag will be merged with another Western Digital subsidiary.

Komag produces the hard disk platters used in WD’s drives, along with those of rivals such as Seagate and Hitachi. The purchase will enable WD to make its own platters in-house, significantly cutting costs while forcing the competition to source platters from other manufacturers.

Interestingly, The Register notes that Western Digital used to own its own hard disk platter manufacturer, but sold it to Komag in 1999 at a loss.

Still, even buying back what is in part its old assets at an extreme premium, the deal should enable the company to save on expensive ongoing outsourcing and shave the cost of its products overall.

“This acquisition is a significant step in the evolution and differentiation of WD as a leader in the worldwide hard drive industry,” said John Coyne, WD President and Chief Executive Officer.

“This acquisition will enable WD to optimise synergies through the integration of heads and media, secure our long-term supply of media, and sharpen our ability to deliver high quality, highly reliable and cost-effective products to our customers.”

The deal is expected to close in the third calendar quarter of 2007.

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