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Seagate to Acquire Dot Hill for $694 Million

Continuing to invest outside HDD core business
This is a Press Release edited by on 2015.08.19

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Seagate Technology plc and Dot Hill Systems Corp. have entered into a definitive agreement under which a wholly-owned indirect subsidiary of Seagate will commence a tender offer for all of the outstanding shares of Dot Hill in an all-cash transaction valued at $9.75 per share, or a total of approximately $694 million on a fully-diluted equity value basis.

As Dot Hill has approximately $49 million in cash on its balance sheet as of June 30, 2015, the transaction reflects an enterprise value of approximately $645 million. The consideration represents a 50% premium over the preceding three month stock price average.

Dot Hill's external storage array-based systems and software products will complement and expand Seagate's storage systems offerings and be offered as part of Seagate's cloud systems and electronics solutions business. Seagate will leverage Dot Hill's storage technology IP portfolio and software capabilities to drive innovation and provide incremental value to their combined OEM customer base.

"Dot Hill's innovative storage systems and IP portfolio are a strategic addition to our storage technology portfolio, enabling us to accelerate the growth of Seagate's OEM-focused cloud storage system and solutions business," said Phil Brace, president of cloud systems and electronics solutions, Seagate. "We are focused on providing the highest quality storage systems for our OEM customers and Dot Hill's storage solutions will enable us to advance our strategic efforts. We look forward to welcoming Dot Hill's strong team, which has proven experience in developing and delivering best-in-class storage solutions that are trusted by the world's leading IT manufacturers and their channel partners, and we expect the transaction to be accretive to non-GAAP earnings in fiscal 2016."

"Seagate has a strong reputation in enterprise storage and is focused on building out its best-in-class storage system capabilities, making them the right home for the talented Dot Hill team," said Dana Kammersgard, CEO, Dot Hill. "Dot Hill's customers will benefit from leveraging Seagate's leading technology and infrastructure to accelerate the delivery of advanced solutions."

The transaction has been unanimously approved by Dot Hill's board of directors and the consummation of the tender offer is subject to customary closing conditions, including a minimum tender of a majority of outstanding Dot Hill shares, the expiration or termination of any applicable waiting periods under applicable competition laws, and other customary conditions.

Following the successful completion of the tender offer, Seagate will acquire all remaining shares not tendered in the tender offer through a second-step merger at the same price as to be paid to stockholders tendering their shares in the tender offer.

The transaction is expected to close during the fourth calendar quarter of 2015, subject to the satisfaction of customary closing conditions and the receipt of certain regulatory approvals, including those required by the Hart-Scott-Rodino Antitrust Improvements Act.

Seagate expects to finance the transaction from existing cash balances and the transaction is not subject to any financing conditions.

Perella Weinberg Partners served as financial advisor and Wilson Sonsini Goodrich & Rosati served as primary legal advisor to Seagate in connection with the transaction. Morgan Stanley & Co. LLC and Needham & company, LLC served as financial advisors and Cooley LLP served as legal advisor to Dot Hill.

Our Comments

It's now obvious. The market of HDD will continue to slowly decrease in the next years and Seagate, the number two HDD maker in the world, has to diversify.

The company already did it, entering into online backup (Evault) SSDs (Avago LSI Flash Business) and already in external storage subsystems with the acquisition of LaCie, Xyratex and formerly X-IO Technologies, investing a total of of more than one billion dollar since 2007 in non HDD activities for finally small results.

By acquiring Dot Hill, Seagate continues to believe that these latter activities will compensate its declining HDD business. But up to now, it didn't happen.

Imation followed the same idea, buying RAID maker Nexsan in 2013 for a more modest sum, $120 million, to compensate its declining media market.

More than that, being more involved in storage systems, Seagate takes the risk to compete with many of its customers and OEMs acquiring HDDs for their own configuration. It's also the case for rival WD/HGST. Toshiba, the third HDD maker, could benefit from this situation not being involved in subsystems, but only in consumer external HDDs.

$14 billion Seagate is getting public company Dot Hill founded in 1999 through the merger of Box Hill Systems Corp., and Artecon, Inc., based in Longmont, CO, and incorporated in Delaware, for a relatively high price, $694 million, representing an 88% premium to last Tuesday's closing stock price for a company modestly successful and slightly profitable and that said earlier this month that it expects non-GAAP revenue of $245 million to $260 million for FY15 ended next December, an increase between 13% and 19% compared to former fiscal year.

One of its big OEM was HP joined by Quantum more recently.

Dot Hill, also with an extensive patent portfolio, claimed to have deployed more than 600,000 RAIDs worldwide.

More recent acquisitions of Seagate in non HDD businesses

Month Year Acquired company Price in $ million Activity of acquired company
1 2007 Evault 185 Online backup and recovery solutions
12 2007 MetaLINCS NA E-discovery software
5 2012 LaCie 186 External storage subsystems
12 2013 Xyratex 374 HDD test systems and HPC storage
5 2014 Avago LSI Flash Business 450 PCIe flash technology and SSD controller
8 2015 Dot Hill Systems 694 Storage subsystems