Western Digital buys out rival Komag

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Further signs of consolidation in the disk drive industry were evident as Western Digital agreed a deal to buy component maker Komag for around $1 billion (£500 million) in cash.

The proposed merger comes amid a sharp fall in prices in the highly commoditised disk-drive industry, once one of the bedrock manufacturing sectors in Silicon Valley.

Western Digital will pay $32.25 a share for all of the outstanding shares of Komag, a supplier of the thin-film media that finished products maker Western uses to make disk drives.

In April, rival Seagate Technology scaled back its outlook for the current quarter and year, blaming a price war over high-capacity desktop computer drives, which now store as much as about one trillion bytes of data.

The Komag deal comes four years after Western Digital acquired part of bankrupt disk drive parts maker, Read-Rite, which supplied the mechanical heads used to read data on drives.

So-called Winchester disk drives - the basic technology used for storage in personal computers, laptops and a range of consumer electronics - was invented in Silicon Valley by IBM researchers in the 1970s.

IBM sold most of its own disk drive business to Hitachi in 2003. Seagate acquired Maxtor, another of the remaining independent disk drive makers last year.

Western Digital plans to fund the transaction, including the expected retirement of Komag's convertible debt due in 2014, through cash from the combined company and a senior secured term loan of up to $1.25 billion (£512 million).

The transaction has been unanimously approved by both boards and is subject to regulatory approvals. It is expected to close in the third quarter.

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