Hitachi has agreed to pay $2.05 billion for IBM’s hard disk drive business. The deal will see the creation of a new standalone company under Hitachi majority ownership. Hitachi will have a 70% stake in the new company, while IBM will retain a 30% stake for the first three years of the company’s life. Subsequent payments made by Hitachi will mean that the Japanese company will eventually assume full ownership of the new company.
The new company will be headquartered in San Jose, California and will employ around 24,000 people. An independent team comprising executives from Hitachi and IBM’s existing hard disk drive operations will manage the company. Hitachi anticipates that the new company will generate revenues of $5 billion by March 2004, increasing to $7 billion by March 2007. The new company will supply hard disk drives to Hitachi and IBM as part of a multi year supply contract.
The new company will combine IBM’s traditional strength in hard disk drive technology with Hitachi’s strength in next generation vertical recording technology. Analysts believe that the combined strengths of IBM and Hitachi in these fields will pose a considerable threat to industry competitors.
The deal will proceed once regulatory approval has been received. The formalities of the deal are expected to be complete by the end of this year.