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Maxtor, Quantum's Hard Disk Drive Group Exchange Vows

In an all-stock deal valued at about $2.3 billion, Maxtor Corp. and Quantum Corp. Wednesday revealed definitive plans to merge Maxtor and Quantum's Hard Disk Drive (HDD) Group.

Maxtor will issue Quantum's HDD stockholders 1.52 common stock shares for each share they own. Maxtor will account for the transaction as a purchase and said the transaction is expected to be tax-free to Maxtor, Quantum and their respective stockholders. Maxtor said earnings per share should be accretive by early 2002 and that the merger will generate annualized cost savings of between $120 million and $200 million within 18 to 24 months of its completion.

The merger was unanimously approved by the boards of both companies and Maxtor said the merged entity -- to be known as Maxtor Corp. -- will have annual sales of about $6 billion. At closing, on a pro forma basis, the company will have a combined ship rate of more than 50 million hard drives annually. Maxtor was quick to note that its Network Systems Group, which currently ships a family of network-attached storage (NAS) products, will be part of the combined company.

"This is a bold and strategic step for both companies," said Mike Cannon, Maxtor's current president and chief executive officer, who will head the new company. "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. By combining the resources of the two companies and the manufacturing expertise of Matsushita-Kotobuki Electronics Industries Ltd. (MKE), a strategic partner of Quantum, the combined enterprise will be able to maintain a leadership position in desktop drives and be exceptionally well positioned to expand rapidly into other high-growth segments, including Intel-server drives, consumer electronics drives and server appliances."

The merged entity will maintain Quantum's strategic relationship with MKE while continuing to utilize Maxtor's current manufacturing capability, including its manufacturing facilities in Singapore.

"I fully expect the 16 year relationship that Quantum has established with MKE to grow and strengthen as our strategic manufacturing partner," Cannon said. "The combination of MKE's renowned automated, high-volume manufacturing and Maxtor's flexible cell-based approach will create a company with the industry's best manufacturing capability."

Sachihiko Hamaguchi, president of MKE, affirmed that MKE will extend the strategic alliance to the new company.

The combined company's product portfolio will include:

  • A broad range of desktop hard disk drives
  • High-performance SCSI drives, including the Atlas 10K family
  • Consumer electronics hard disk drives
  • NAS appliances.

Maxtor could be facing some stiff competition in the NAS market, however. Linux hardware specialist VA Linux Systems Inc. jumped into the NAS space in early September touting an Open Source NAS solution that it predicts could capture as much as 55 percent of the NAS market by 2005. VA Linux is not so much going after high-end NAS vendors like Hitachi, EMC or Net Appliance, but instead is anticipating that its Open Source NAS solution will put the squeeze to smaller closed source, proprietary NAS vendors.

The merger is expected to be completed by early calendar 2001, subject to the approval of Maxtor and Quantum HDD stockholders, expiration or termination of the applicable Hart-Scott-Rodino waiting periods, and approval by European regulatory authorities. Hyundai Electronics America, which holds a 35 percent stake in Maxtor, has signed an agreement to vote in favor of the transaction.

Maxtor is expecting to incur special restructuring charges and other one-time expenses -- the aggregate amount of which