April 19 (Bloomberg) -- Seagate Technology Plc agreed to buy Samsung Electronics Co.’s computer hard-disk drive business for $1.38 billion in cash and stock as shrinking sales accelerates consolidation in the industry.
Seagate offered 45.2 million shares valued at $687.5 million and the remainder in cash, the companies said today in a joint statement. They also agreed to supply each other with electronic-storage devices as part of a strategic partnership.
The deal will help the industry’s second-largest producer narrow the lead Western Digital Corp. took last month when it agreed to buy Hitachi Ltd.’s storage business, while giving Samsung funds to invest in new businesses such as health care. Mechanical drive makers have slashed prices to compete against faster and smaller flash-memory chips used in Apple Inc.’s iPad and some laptop computers.
“This can’t be bad for Samsung,” Han Seung Hoon, an analyst at Korea Investment & Securities in Seoul. “Samsung’s hard-disk business hasn’t really been making money, so with this deal, they can be more competitive.”
After the transaction, Samsung will become the second-largest shareholder of Seagate with a 9.6 percent stake and will be entitled to nominate a director, the companies said. They said they expect to complete the deal by the end of the year.
Samsung rose 0.9 percent to close at 875,000 won in Seoul trading before the announcement. Dublin-based Seagate fell 13 cents to $17.71 on the Nasdaq Stock Market at 9:41 a.m. New York time. It had added 19 percent this year before today.
The deal is subject to a review by the U.S. and international regulators, Samsung said in a separate statement. The sale is the biggest ever by the Suwon, South Korea-based company, according to data compiled by Bloomberg.
Samsung also agreed to supply Seagate with NAND flash memory to be used in storage devices made by Seagate, according to the statement. Seagate will supply disk drives to Samsung for personal computers and notebooks.
Samsung began making hard-disk drives in 1989 and the business is part of the company’s semiconductor unit. After selling the division, Samsung will focus on its chip operations, while Seagate will be able to secure “a strategic status” in the global market, Samsung said.
Hard-disk drive shipments will probably drop about 4 percent this quarter from the fourth quarter amid competition from smaller and faster storage products, according to IHS ISuppli. Samsung and Toshiba Corp. are the biggest makers of so-called flash memory used to store data in some laptops and tablets such as the iPad and Samsung’s Galaxy Tab.
Western Digital accounted for 31 percent of global hard drive shipments in the fourth quarter, followed by Seagate’s 30 percent, Hitachi’s 18 percent, Toshiba’s 11 percent and Samsung’s 10 percent, according to IHS ISuppli estimates last month. Since then, Western Digital agreed to buy Hitachi’s storage business for $4.3 billion.
Apple and other electronics makers will generate $49 billion in sales of tablet computers by 2015, a sign of booming demand for devices that bridge the gap between smartphones and laptops, according to research firm Strategy Analytics.
Last year, Western Digital tried to buy Seagate, two people familiar with the matter said in December. The offer was refused on concern the deal would have faced antitrust obstacles, the people said. Seagate also spurned an offer from TPG Capital.
Morgan Stanley served as financial adviser to Seagate while Allen & Co. advised Samsung, according to the statement.
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