Seagate Outmuscles Western Digital

Seagate (NASDAQ: STX) entered value territory when the company reported weak quarterly results. Western Digital (NASDAQ: WDC) is a clear favorite in the storage space, since it has a position in mechanical and solid state drives. Yet Seagate just grabbed part of Toshiba’s chip unit, outmuscling Western Digital.

On September 28, Seagate, Hoya, SK Hynix, Dell Technologies (NYSE: DVMT), and Apple (NASDAQ: AAPL) formed a consortium and led by Bain Capital to buy Toshiba’s chip unit for $17.7 billion. For months, Western Digital fought Toshiba through the courts to buy the unit without success. For Seagate, part-owning Toshiba’s chip unit has advantages. Western Digital loses by not owning it because it would have had an even bigger market share for memory chips. The consortium will collectively benefit from owning the memory business.

Seagate, which is flush with $8.67/share in cash, puts its money to good use. It is contributing $1.25 billion and will form a long-term supply agreement with Toshiba’s unit.

Due to Western Digital challenging the deal, Seagate and the consortium cannot yet assume the transaction will close. Toshiba could still loses against Western Digital in the courts and if that happens, the latter could get the assets at a discount.