Seagate is gobbling up Samsung's HDD business for $1.375B USD, half in cash, and half in stock.  (Source: LucasFilm)

The companies are forming a "broad alliance". Seagate will provide Samsung with HDDs for its notebooks and the companies will work together to design enterprise solutions.  (Source: Tom's Hardware)

Samsung will also license its significant NAND (flash memory) IP to Seagate, opening the door to new Seagate SSDs and hybrid drives.  (Source: Samsung)
There's now only three major HDD players in the market

And then there were three.  March saw Western Digital Corp. (WDC) scoop up the fourth largest manufacturer of hard drives, Hitachi Global Storage Technologies (a unit of Japanese electronics giant Hitachi Ltd.), for a cool $4.3B USD.  

Now Seagate Technology PLC (STX) has announced that it will be devouring the HDD unit of South Korea's Samsung Electronics Co. Ltd. (005390).  The deal is valued at $1.375B USD -- 50 percent in stock and 50 percent in cash.

For the consumer, the deal means that, in effect, you now only have three major choices when it comes to disc drives -- Seagate, Western Digital, and Japan's Toshiba Corp. (6502) (formerly in fifth place, now bumped to third, thanks to the acquisitions).

Seagate writes in a press release:

Seagate and Samsung announced that they have entered into a definitive agreement under which they will significantly expand and strengthen their strategic relationship by further aligning their respective ownership, investments and key technologies.

The sale, like the acquisition of Hitachi last month, is likely the result of an industry-wide struggle in the face of new technology.  HDD manufacturers are facing increasing sales pressure from solid-state drives (SSDs).  The manufacturers have responded with price cuts, but the cuts have hurt their bottom lines.

The deal, however, runs much deeper than a mere sale.  Samsung and Seagate, according to the release, are committing themselves to a "broad strategic alliance".  The roots of that alliance trace back to a joint development agreement that the companies agreed upon in August 2010.

As part of this "alliance", both companies commit to cross-licensing intellectual property with each other.  Both companies have large IP holdings, so it’s unclear exactly what is covered under the deal, but suffice it to say this is likely a significant provision.

Additionally Seagate promises to supply Samsung HDDs for its consumer notebooks and other devices.  That's a boost for Samsung as it is in the process of trying to gain a major chunk of PC market share.

The two companies have also agreed to develop enterprise-aimed solutions (likely business notebooks, storage area network devices (SANs), etc.).

Both the intellectual property and the joint marketing efforts will likely lead to Seagate leveraging Samsung's mature NAND flash memory technology.  Samsung will reportedly supply NAND to Seagate for hybrid HDDs and dedicated SSDs.

The stock options that Seagate is granting Samsung are particularly important, as well.  According to Seagate, they represent "significant equity ownership" -- or a major chunk of the company.  As part of a deal, and perhaps directly as a result of gaining this chunk, Samsung will now get to have one of its executives sit on Seagate's board of directors. 

Seagate chairman, president and CEO [press release 2], "We are pleased to strengthen our strategic relationship with Samsung in a way that better aligns both companies around technologies and products. With these agreements, we expect to achieve greater scale and deliver a broader range of innovative storage products and solutions to our customers, while facilitating our long-term relationship with Samsung."

Nestled inside the company's second press release was a statement that Seagate would also "strengthen its relationship" with Japan's TDK Corp./SAE Magnetics (H.K.) Ltd. (6762).  TDK recently sold its flash and optical storage media holdings to 3M Comp. (MMM) spinoff Imation Corp. (IMN).  TDK still maintains significant research and development holdings, though, and develops brushless hard drive motors and other small HDD parts.

The deal between Samsung and Seagate still has to receive approval from the U.S. Federal Trade Commission and its South Korean equivalent, the South Korea Fair Trade Commission.  It is expected to receive approval according to The Wall Street Journal, the first source to report on the rumor of the pending acquisition.  The two companies do not significantly compete with each other, so the deal will likely not be viewed as a competitive risk or in violation with antitrust rules.

Seagate is incorporated in Dublin, Ireland, but has its principal executive offices in Scotts Valley, California.  The company owns approximately 25-30 percent of global hard drive sales, according to various estimates.  Samsung owns between 10 and 15 percent. 

The FTC has, in recent months approved a number of high profile acquisitions in the technology sector, including Oracle Corp.'s (ORCLacquisition of Sun Microsystems, Intel Corp.'s (INTCacquisition of McAfee, and Hewlett-Packard Company's (HPQacquisition of Palm, Inc.  In addition to the Seagate-Samsung deal, its docket also includes an evaluation of U.S. cell phone service provider AT&T, Inc.'s (Tpending acquisition of T-Mobile (DTE).

"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer

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