Western Digitals Hitachi buyout gets held up by EU

Remember that deal where Western Digital was going to take over Hitachi Global Storage? Well, it seems like it has run into a huge amount of red tape, as EU regulators have filed an antitrust complaint against Western Digital over the purchase.

Remember that deal where Western Digital was going to take over Hitachi Global Storage? Well, it seems like it has run into a huge amount of red tape, as EU regulators have filed an antitrust complaint against Western Digital over the purchase.

The antitrust complaint is with regards to the combination of the two companies and its potential effect on the competition, i.e. Seagate and at least for now Samsung. What is interesting here as well is if we'll see a repeat event once Seagate's deal to buy Samsung's hard drive division will be meet by a similar complaint from the EU. According to Bloomberg, Seagate stated that it doesn't expect to run into similar problems, although it's still early days for its filing with the EU regulators.

Bloomberg is also quoting the EU's antitrust chief, Joaquin Almunia as saying "[the hard-drive industry] has already experienced significant consolidation and the proposed acquisitions will further reduce competition". Considering that we're moving down to a mere three hard drive makers once/if these deals are done, we can sort of see where the EU are coming from, especially as Western Digital will have about 50 percent market share with Seagate sitting on 40 percent. Toshiba is the third player with a mere 10 percent and this is almost exclusively in the notebook market.

One small snag for Western Digital is that Seagate got in touch with the EU commission before Western Digital and as such has a bigger chance of getting its deal with Samsung to be approved. This brings the players in the market down from five to four and Western Digital end up in a situation where it'll be harder to have its merger with Hitachi Global Storage approved. That said, Western Digital hasn't been told that the deal is off the tablet, as so far it's only received a "statement of objections" and if the company can respond in the right manners to the objections the deal might still go through.

Beyond all of this, companies like TDK are being taken into account, as TDK is at least according to Bloomberg the only independent supplier that's left that makes read/write heads for mechanical hard drives. With fewer competitors in the market, TDK would most likely end up with less business and this is considered a bad move in terms of anticompetitive terms. Other suppliers of hard drive components would be in similar situations as although it's unlikely that overall demand of hard drives is set to decline because there are fewer manufacturers, what usually happens is that the consolidated total output after a merger is lower than from the two previous companies combined.

It's also worth remembering that the U.S. Federal Trade Commission (FTC) is still looking into both deals and no final conclusions have been drawn there either. As such, both deals are still far from being finalized and there's still plenty of red tape that has to be cleared before we'll see a potential change in the hard drive market.

Source: Bloomberg