Maxtor and Quantum's HDD to merge

Maxtor Corp. and Quantum Corp. have sealed a $2.3 billion deal that will combine Maxtor and Quantum's Hard Disk Drive Group (HDD), in an all-stock transaction, forming one of the world's largest disk drive companies.

Quantum's HDD stockholders will receive 1.52 shares of Maxtor common stock for every share of HDD common stock they own.

It was unclear at press time if the companies were planning any layoffs.

The newly combined entity will be named Maxtor Corp., and will be led by Mike Cannon, Maxtor's current president and chief executive officer. At closing, the company will have a combined ship rate of more than 50 million hard drives annually for use in a range of desktop personal computers, Intel-based servers, and consumer electronics applications. In addition, Maxtor's Network Systems Group, which is currently shipping a family of network-attached storage (NAS) products under the MaxAttach brand, will be part of the new company.

"This is a bold and strategic step for both companies," said Cannon. "The combined company will have the financial resources, product breadth, and intellectual property to capitalize on the future explosive growth of storage at both the storage device and subsystem levels.

Cannon also said that he expects the combination of resources will reduce duplicative expenses. "We anticipate that, with the operational efficiencies resulting from this transaction, we will be in a position to offer better value for our customers, while generating the profits necessary to fund expanded research and development to become a stronger competitor in this industry."

The transaction is expected to be tax-free to Maxtor, Quantum, and their respective stockholders and will be accounted for under the purchase method of accounting. Earnings per share are projected to become accretive in early 2002. It is expected that the merger of Quantum HDD and Maxtor will generate annualized cost savings of $120 million to $200 million within 18 to 24 months following completion of the transaction.

The transaction received unanimous approval by the boards of directors of both companies, and will create an enterprise with annual sales of approximately $6 billion.

Michael A. Brown, chairman and chief executive officer of Quantum Corp., which along with Maxtor is headquartered in Milpitas, Calif., will join the new company's board of directors. Quantum's DLT & Storage Systems Group, which is not involved in the Quantum HDD/Maxtor transaction, will operate as a legally separate, standalone company that will be known as Quantum Corp. and will be led by Brown.

"The enterprise storage market has evolved to a three-tiered structure consisting of component suppliers, infrastructure vendors and storage services providers," said John Webster, of the Nashua, N.H.-based analyst firm Illuminata, Inc. "Quantum once played in both the component and infrastructure tiers via Quantum HDD and Quantum DSS respectively. No longer. Quantum is now a pure infrastructure player with ATL tape and Meridian NAS, both of whom were independently acquired by the 'old' Quantum. The new Quantum is a merger of two companies in different segments of the enterprise storage market that would probably not otherwise be together today."

Webster questioned what impact this merger will have on Quantum's other division. "I will actually be more interested in seeing what happens to Quantum DSS which owns the ATL tape and Meridian Data NAS brands in the coming months."

Completion of the merger is expected to occur in early calendar 2001, and is subject to the approval of Maxtor and Quantum HDD stockholders. Hyundai Electronics America, an approximately 35% stockholder of Maxtor, has signed an agreement to vote in favor of the transaction. It is anticipated that the new company will record special restructuring charges and incur other one-time expenses at the time of completion. The aggregate amount of these charges and expenses for the new enterprise is expected to total between $120 million and $180 million.

Yankee Group analyst, William Hurley said that this is great positioning by the two companies. "Largest or not, the merger will put the new Maxtor Corp., in a great position to target its drives at the burgeoning suite of NAS offerings from the Maxtor of old and other vendors. Seagate, IBM & Fujitsu will continue to dominate the large array market," Hurley said.

Let us know what you think about the story, e-mail Kevin Komiega, assistant news editor

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