By Robin Wauters
Samsung (OTC:SSNLF) and Seagate (NASDAQ:STX) this morning announced a broad "strategic alignment" in a move to expand their existing relationship and more effectively counter competitor Western Digital (NYSE:WDC).
The most important elements of the agreement include Samsung combining its hard disk drive operations into Seagate, receiving significant equity ownership in the HDD and storage solutions provider and enhancing the current patent cross-license agreement between the two companies.
In addition, Samsung and Seagate inked a NAND flash memory supply agreement under which Samsung will provide Seagate with its semiconductor products for use in Seagate’s enterprise solid state drives and other products, as well as a disk drive supply agreement under which Seagate will supply drives to Samsung for PCs, notebooks and other consumer electronics.
The combined value of these transactions and agreements is approximately $1.375 billion USD, which will be paid by Seagate to Samsung in the form of 50% stock and 50% cash.
Upon closing, Samsung will receive 45.2 million Seagate shares with a total value of $687.5 million, representing approximately 9.6% ownership of Seagate, plus $687.5 million in cash.
The agreement has no financing contingencies, and is subject to customary closing conditions, including review by U.S. and international regulators. The transactions are expected to close by the end of calendar year 2011.
Samsung and Seagate will also collaborate to develop new enterprise storage solutions, and a Samsung exec will be nominated to join Seagate’s board of directors in the near future.
Something like this was bound to happen after rival Western Digital recently announced that it would buy Hitachi Global Storage Technologies (HIT) for $4.3 billion in a deal that will expand the company’s reach in data storage.
At the end of last year, Seagate reportedly turned down an acquisition offer from Western Digital after being actively courted by private equity firm TPG Capital, which reportedly offered more than $7.5 billion for the company.
Yesterday, reports claimed that Samsung was indeed considering selling its money-losing HDD business for $1 billion to 1.5 billion to raise cash to invest in new growth areas, with Seagate being named as a potential buyer.
Samsung has about 18% of the HDD market, according to iSuppli.