March 11, 2011 6:00 AM
Dealmaker of the Week: Kenneth Siegel of Morrison & Foerster
Posted by Tom Huddleston Jr.
Data storage company Western Digital Corporation, based in Irvine, California, announced on Monday an agreement with Hitachi, Ltd., to buy Hitachi's hard-disk drive business for $4.3 billion.
Hitachi, Ltd.--a Tokyo-based global electronics company and the parent company of San Jose-based Hitachi Global Storage Technologies (Hitachi GST), which develops hard-disk drives and other data storage equipment.
Under the agreement, Western Digital will fold Hitachi GST into its hard-disk storage business. Hitachi will gain a 10 percent stake in Western Digital and place two representatives on that company's board. Western Digital agreed to pay $3.5 billion in cash and issue 25 million shares of its stock to Hitachi. The deal is expected to close in the third quarter.
O'Melveny & Myers is counsel to Western Digital, while Siegel's team worked with a group from Skadden, Arps, Slate, Meagher & Flom to advise Hitachi. Skadden advised Hitachi on a potential IPO for Hitachi GST, an option the company kept alive until reaching a deal with Western Digital.
THE BIG PICTURE
The deal represents Hitachi's largest asset disposal ever, as the company looks to shift its focus to other manufacturing, according to Bloomberg. Western Digital will become a leader in the hard-disk drive market. The two companies shipped 50 percent of the drives sold globally in the fourth quarter of 2010.
The deal comes as cross-border M&A is on the rise in Japan, where the Yen is currently strong. Siegel notes that Japanese companies have been known in the past to worry more about a strong currency's negative effects on their own businesses' exports, as opposed to investing internationally. But, he says, there has been a culture shift recently.
"They've made the decision to do cross-border M&A," he says. "They know they're going to do it, so doing it while the Yen is high is a real measurable merit for them, so they're much more prepared to push forward quickly."
Japanese companies historically have been slower in negotiations. But the relative speed of completion on this deal--and, Siegel says, other matters the firm has recently worked on--demonstrate that attitudes are changing. The agreement was signed Sunday night after about three weeks of negotiations, he says.
Siegel dates his firm's relationship with Hitachi back to 2002, when he advised the company on a $2 billion acquisition of IBM's hard-disk drive business that led to the formation of Hitachi GST. The firm also advised on Hitachi Data Systems's 2007 acquisition of digital archiver Archivas, Inc.
It's unusual for a firm to advise a Japanese client on buying a new business only to return later to work on its sale, Siegel says.
"Typically, Japanese companies buy for the long term, and then they're not big exiters," he says. "This is the first time we've seen a full life cycle of a transaction, or a company, at this scale."
While the IBM deal took nearly a year to negotiate, the Hitachi deal finished in a matter of weeks and is "probably the first time a Japanese company has effectively managed a dual track--with and IPO and M&A process--to get a good transaction done, and to get it done on schedule," Siegel says.
Getting the deal done quickly after Western Digital made its offer presented one of the deal's greatest challenges. The transaction "will ultimately involve 100,000 employees globally--60,000 for WD and 40,000 for HGST," he says.
The joint effort between Siegel's team and Skadden gave the dealmakers a leg up. Skadden was already involved in the U.S. with Hitachi's potential IPO of the data storage business.
Siegel says the firms combined teams, with MoFo "representing Hitachi and Skadden taking advantage of their knowledge of [Hitachi GST] to jump start the scheduling and the diligence process that needed to happen quickly to get a deal done."Make a comment