Europe’s top competition regulator has issued a complaint against Western Digital’s proposed acquisition of an Asian competitor, while offering a reprieve to Seagate, another US hard drive maker preparing a takeover in Asia.
Regulators in Brussels launched in-depth probes into the two deals amid antitrust fears over the number of global hard disk drive makers falling from five to three.
However, the significance of the two cases goes beyond direct competition concerns, testing to the limit the rules that govern how Brussels judges merger applications.
The decision to only serve Western Digital with a statement of objections – formal charges – will be highly controversial since it announced its $4.3bn acquisition of Japanese Hitachi’s hard drive business a month before Seagate announced its own deal.
Yet Seagate was able to notify the European Commission of its $1.4bn bid for the hard drive business of Samsung, the South Korean group, a day ahead of Western Digital. This potentially gave it a regulatory advantage, meaning its deal would be examined without regard to Western Digital’s plans.
By contrast, Western Digital’s bid would be judged as if Seagate’s deal had been completed, leaving four, not five, global hard drive makers.
In case the Commission’s objections against Western Digital are primarily based on this procedural disadvantage, the case is likely to underline the importance of procedural tactics and add urgency to lawyers’ efforts to file applications in sectors where other deals are likely.
Western Digital’s takeover of Hitachi would strengthen its 50 per cent grip over the sector. The Seagate-Samsung tie-up would leave it with 40 per cent of the market, while Toshiba, the other remaining participant, holds about 10 per cent.
Hard drive sales have fallen as netbooks, which use conventional hard drives, have lost market share to tablet devices. The big hard drive makers argue that prices are under pressure and that consolidation would allow them to compete against new technologies, such as solid-state flash memory.
Western Digital disclosed it had received a confidential complaint from the Commission over the acquisition’s “potential effects on competition”. It can reply to the objections ahead of a possible oral hearing next month. A statement of objections does not prejudge a final decision by the Commission.
Seagate said: “Seagate believes it has co-operated completely with the European antitrust regulators and at this time we have not received and, do not believe we will receive, any statement of objections in connection with our transaction.”
The Commission declined to comment on the Seagate statement. EU regulators have until October 10 to block the deal. US regulators are also looking closely at both takeovers.
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