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Seagate / Samsung

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Seagate Technology PLC (Seagate) proposed to acquire the hard disk drive business of Samsung Electronics Co Ltd. Both manufacture and sell hard disk drives and external hard disk drives and both are vertically integrated. The deal was announced on 19 April 2011 and worth approximately $1.4 billion.



Competition assessment (Source: Merger Register)

The proposed acquisition will increase concentration in what are already highly concentrated markets. This is because post-mergers of both WD/HGST and Seagate/Samsung, the number of manufacturers in these HDD markets reduces from four global suppliers to only two global suppliers.

While the ACCC considered that a merger of Seagate and Samsung would result in further concentration in the relevant global markets, the ACCC's investigation concluded that Samsung is not a close competitor to Seagate, that Samsung is not a leader of innovation or price discounting in the HDD industry, and the removal of Samsung from the relevant HDD markets is unlikely to result in a substantial lessening of competition.

The ACCC has decided not to oppose the proposed acquisition.

The ACCC considered this matter concurrently with Western Digital's proposed acquisition of Hitachi Global Storage Technologies.


China (MOFCOM)

China's Anti-Monopoly Bureau of the Ministry of commerce conditionally approved. Conditions required Seagate to increase production capacity of Samsung HDD's and invest at least $800m annually in additional research and development over three years.


European Union

Seagate notified its proposed merger to the EU one day before Western Digital. As a result, they were given priority under EU rules and assessed on the assumption that they would still face competition from both Western Digital and Hitachi (on the other hand, WD was assessed on the basis that the Seagate/Samsung acquisition had taken place. Commissioner Almunia described it as follows:

Our initial investigations told us that both deals could raise concerns. The mergers were notified to us within a very short time and, when this happens, we must give priority to the transaction that was notified first. In other words, the Seagate transaction is being assessed assuming that Western Digital and Hitachi are still separate competitors. The sector is already quite concentrated. If both mergers were approved, there would be only three or perhaps two players per product market. Hard disk drives are one of the backbones of the digital economy and their demand is forecast to grow significantly in the next few years

An in depth investigation commenced in May.

Approved unconditionally. Full (non-confidential) reasons available herefrom EC website (published 5 October 2011 - 126 pages)

Some reasons provided in EC Press Release, available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1213 (fn omitted)

The European Commission has approved under the EU Merger Regulation, following an in-depth investigation, the acquisition of the hard disk drive (HDD) business of Samsung Electronics of Korea by Seagate Technology of the US. HDDs are data storage devices used in computers, laptops or camcorders. Although the merger will further consolidate markets that are already highly concentrated, the Commission concluded that the transaction would not significantly impede effective competition in EEA or any substantial part of it.

The Commission's examination showed that there are separate worldwide markets for hard disk drives based on their end use application (such as desktop computers, mobile computers, servers). The Commission also identified a separate market for external hard disk drives in the European Economic Area (EEA) 1, which is downstream from hard disk drives.

The main impact of the transaction is on the markets for 3.5" desktop hard disk drives and 2.5" mobile hard disk drives where the investigation revealed that Samsung is not a particularly strong competitor. There would remain three strong suppliers on the 3.5" desktop market (the merged entity, Western Digital of the US and Japan's Hitachi Global Storage Technologies), and four strong suppliers on the 2.5" mobile market (the three plus Toshiba, also of Japan). With at least three suppliers, customers will retain sufficient possibilities to switch suppliers. The Commission also found that the removal of Samsung is not likely to lead to a risk of coordination among the remaining HDD suppliers.

The Commission found that the proposed transaction would not jeopardise the business of Japan's TDK, an independent supplier of heads for HDDs, as the merged entity will continue to buy a sufficient volume of components from TDK post-merger. Finally, the Commission found that there would be no effect on the market for external hard disk drives in the EEA as non integrated suppliers of external hard disk drives would retain sufficient alternative sources for hard disk drives.

The Seagate/Samsung deal was assessed independently of Western Digital's proposed acquisition of the HDD and Solid State Drives (SSDs) businesses of Hitachi Global Storage Technologies which was notified one day later and is still pending.



Approved, 15 December 2011.

View JFTC press release.


United States

Approved unconditionally

Some reasons provided FTC Statement relating to the WD merger (http://www.ftc.gov/os/caselist/1110122/120305westerndigitalstmt.pdf) as follows:

After a thorough investigation the Federal Trade Commission has challenged Western Digital Corporation's ("Western Digital") proposed acquisition of Viviti Technologies Ltd., formerly known as Hitachi Global Storage Technologies ("HGST"). This challenge comes several months after the Federal Trade Commission closed its investigation of Seagate Technology LLC's ("Seagate") acquisition of Samsung Electronics Co. Ltd.'s hard disk drive assets ("Samsung"). The two proposed transactions were announced within weeks of each other, and both had potential implications for competition in the same product markets. Commission staff reviewed both matters at the same time in order to understand the effects on competition resulting from each transaction on its own, as well as the cumulative effect on the relevant markets if both transactions were allowed to be consummated.

The evidence gathered in the Commission's investigation revealed that the relevant product markets in which to assess the competitive impact of the proposed transactions are based on specific end-uses for hard disk drives ("HDDs") -- such as desktop, notebook, and enterprise – because product features, pricing, and competition differ by end-use applications. For many of these end-uses, we did not have reason to believe that the proposed transactions would result in effects that would have justified a challenge. In the 3.5 inch desktop HDD ("desktop HDD") market, however, we had reason to believe the consummation of both of these acquisitions would result in likely anticompetitive effects. The Commission came to this conclusion based on the evidence from interviews with market participants, testimony of the parties' executives, and documents produced by the parties and other industry participants.

The Commission determined after its investigation that there were significant differences between the competitive implications of the two proposed mergers. Since in each case the acquiring firm was a strong competitor, attention turned to the characteristics of the two firms that were to be acquired in these proposed transactions – HGST and Samsung. Based on this analysis, it was clear that an independent HGST was much more likely to be an effective competitive constraint in the desktop HDD market than would an independent Samsung.

In particular, HGST has been a strong, high quality and innovative competitor in the desktop HDD market. Moreover, HGST has been identified by a number of industry participants as a key driver of aggressive price competition in the desktop HDD market in 2010, and was well-positioned to grow its desktop HDD business in the near future. In contrast, Samsung had struggled to be competitive in the desktop HDD market. In a market for desktop HDDs containing only Western Digital, HGST, and the combined Seagate/Samsung entity, HGST would retain the ability and incentive to act as an effective constraint on desktop HDD pricing. By contrast, Samsung would be less likely to serve as a meaningful constraint on pricing in a desktop HDD market consisting of Western Digital/Hitachi, Seagate, and Samsung. Based on these considerations, the Commission made the decision to challenge the Western Digital/HGST transaction while clearing the Seagate/Samsung transaction, and to preserve the competitiveness of the desktop HDD market by requiring Western Digital to divest HGST's desktop HDD assets to Toshiba Corporation under the terms of a proposed Consent Agreement.



From DavisPolk (fn 2, p 2):

The FTC and EC relied upon different reasons in deciding not to impose any remedies on Seagate/Samsung. The EC decision was driven by the fact that Seagate/Samsung filed first (one day earlier than Western Digital/Hitachi GST) and, under EU rules, competitive impact was assessed "independently" of the second deal, and on the basis that the transaction left four competitors, even though the EC was well aware of the proposed Western Digital/Hitachi GST merger. See EC Press Release, available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1213. In contrast, in the US, the FTC reviewed both deals in tandem to assess their "cumulative" effects. The FTC explained that it challenged Western Digital/Hitachi GST, but not Seagate/Samsung, because that Hitachi, unlike Samsung, had been a uniquely aggressive discounter. See FTC Statement, available at http://www.ftc.gov/os/caselist/1110122/120305westerndigitalstmt.pdf.





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