December 23, 2013 / 3:35 PM / 6 years ago

Seagate to buy Xyratex to add test equipment business

An employee of Seagate Technology is enlarged by a magnifying glass as she concentrates on assembling hard disk drives in a "clean room" at one of their Singapore plants May 5.

(Reuters) - Seagate Technology Plc said it would buy network and storage equipment maker Xyratex Ltd for about $374 million to strengthen its supply and manufacturing chain for disk drives.

Xyratex shares were up 27 percent at $13.25 per share in morning trading, matching Seagate’s offer price.

The deal will help Seagate acquire testing equipment for its hard disk drives (HDD) along with storage systems to analyze and manage network data.

The acquisition could help Seagate maintain its gross margins at the 27-33 percent level as it begins to own more of the equipment that it uses, FBN Securities analyst Shebly Seyrafi told Reuters.

Seagate and rival Western Digital Corp, which dominate the HDD market, have been trying to expand their presence in the faster and more energy efficient solid-state drives market as demand slows in a declining PC market.

Seagate’s deal with Xyratex could be a “complementary asset, but not a real game-changer”, Argus Research analyst Jim Kelleher said. Seagate shares were little changed at $55.92 on the Nasdaq on Monday.

The company said it expects the deal to close in mid-2014, and add about $500-$600 million in revenue in its fiscal year 2015.

Allen & Co LLC was the financial adviser for Seagate, while Wilson Sonsini Goodrich & Rosati acted as primary legal adviser.

Credit Suisse was the financial adviser and Latham & Watkins LLP the legal adviser to Xyratex.

Reporting by Neha Alawadhi and Aurindom Mukherjee in Bangalore; Editing by Joyjeet Das

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