IBM Rumors Boost Shares of Western Digital

By JONATHAN GAW

Aug. 20, 1999 12 AM PT

TIMES STAFF WRITER

Shares of Irvine-based Western Digital Corp. have nearly doubled in the past week, including a 21% boost Thursday, amid rumors that it may be a takeover target of International Business Machines Corp., or others.

The beleaguered computer disk-drive manufacturer saw its shares hit a six-year low last week as its industry continues to struggle with rock-bottom prices and a glut of inventory.

Officials at Armonk, N.Y.-based IBM, the world’s largest computer maker, and Western Digital declined to comment. But industry analysts said the market was abuzz with talk of a Western Digital buyout.

“When you get such a large increase in trading, you have to think something is brewing,” said Charles Payne, head analyst at Wall Street Strategies Inc., a research firm that follows mergers and acquisitions and rates their probability for investors.

Payne said the low price of Western Digital shares makes the “risk/reward” factor favorable for investors. Western Digital shares last week hit $3.50, their lowest since 1993. Thursday, the company’s stock rose $1.19, to $6.88. Even after the boost, however, the stock is off 54% since the beginning of the year.

Another possible suitor is Seagate Technology Inc., the No. 1 disk-drive maker. The Scotts Valley-based company also has been mentioned as a possible buyer for Milpitas-based Maxtor Corp., the No. 4 disk-drive maker.

Seagate spokesman Phil Montero said the company “is always actively looking for partnerships and acquisitions,” but has nothing to report regarding the speculation.

Maxtor spokeswoman Catherine Hartsog said, “When you get this kind of situation, that creates an environment where lots of rumors are spawned.”

The stocks of all the hard-drive manufacturers have risen in the past week in anticipation of strong personal computer sales the second half of the year.

Rumors about a possible IBM takeover of Western Digital have made the rounds occasionally over the past few years, in part because the two already have worked together.

Last year, Western Digital signed a technology-sharing deal with IBM to build new disk drives for personal computers. The deal was meant to allow IBM access to new outlets to distribute its products and give Western Digital a jump on emerging technologies and manufacturing lead time.

Also, Charles A. Haggerty, Western’s chief executive, is a former IBM vice president who worked at Big Blue for 28 years before joining Western Digital.

Haggerty last month said he will retire by the end of June, and the company is looking for a successor, recently signaling the two leading internal candidates by naming Matthew Massengill and Russell Stern co-chief operating officers.

Western Digital, one of Orange County’s seven Fortune 500 companies, has 10,000 employees worldwide, 775 of them in its headquarters in Irvine Plaza. Last year, it lost a record $492.7 million on sales of $2.8 billion.

The company has lost $845.6 million in the last seven quarters and is forecast to lose more than $90 million this quarter.

The company has trimmed staff and operations over the past year as it struggles to cope with a price war that has hurt virtually every player in the hard-drive market.

Western Digital last week announced it will cut 2,500 jobs in Singapore by the end of this year and move some of its operations to Malaysia to take advantage of cheaper labor.

Bloomberg News contributed to this report.

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Acquisition Candidate

Western Digital’s stock jumped $1.19 a share on speculation that IBM is considering purchasing the Irvine-based hard drive manufacturer. Details on the two firms:

Western Digital

Headquarters: Irvine

Operations: Designs and manufactures computer hard drives

Chairman/President/CEO: Charles A. Haggerty

Employees: 10,000, including 775 in Orange County

Exchange: NYSE

Thursday’s stock close: $6.88

1999 revenue: $2.7 billion

1999 net income: --$493 million

International Business Machines

Headquarters: Armonk, N.Y.

Operations: Computers