Mumbai: Seagate (NYSE: STX) and Maxtor (NYSE: MXO) today jointly announced having entered into a definitive agreement under which Seagate will acquire Maxtor in an all stock transaction. The value of the transaction is approximately $1.9 billion.

Under the terms of the agreement, approved by the boards of directors of both companies, Maxtor shareholders will receive .37 shares of Seagate common stock for each Maxtor share they own.

The combined company will retain the Seagate name and executive offices will be located in Scotts Valley, California. Seagate''s chairman, CEO, executive vice presidents, and the principal equity investors have committed to vote their shares in favour of the acquisition.

"This transaction has significant strategic and financial benefits, and the combined company will be better positioned to anticipate and serve the needs of the global customer base in the highly competitive data storage market," Steve Luczo, Seagate chairman, said.

The transaction is expected to be completed in the second half of calendar 2006, subject to obtaining shareholder approvals and customary regulatory approvals. There is a termination fee of $300 million payable to Maxtor under certain conditions. The transaction is intended to be tax-free to Maxtor shareholders.

When the transaction is completed Seagate shareholders will own approximately 84 per cent of the combined company with Maxtor shareholders owning the remaining approximately 16 per cent.

The combined company is expected to generate significant synergies, and the transaction is expected to be at least 10-20 per cent accretive to Seagate on a cash EPS basis after the first full year of combined operations. As with other past combinations of disc drive manufacturers, revenue attrition is anticipated to result from this combination and synergy estimates take into account anticipated revenue attrition.

It is estimated that the incremental revenues will generate gross margins that are in line with the high end of Seagate''s stand-alone model. In addition, the combined company expects to achieve approximately $300 million of annual operating expense savings in connection with the transaction after the first full year of integration.

The combination of Seagate and Maxtor will build on Seagate''s foundation as the premier global hard disc drive company, and will enable the combined company to compete more effectively as the highly competitive data storage industry addresses the challenges and opportunities for significant growth that lie ahead.

"With the increased scale of the combined company, we can reduce overall product costs and provide more innovative products at more competitive prices," said Bill Watkins, CEO, Seagate. "We believe this is a strategic combination that will provide value for our shareholders as well as benefits for our customers," added.

Dr C S Park, chairman and CEO, Maxtor, will become a director of Seagate upon the closing of the transaction. "Together, we will leverage our combined technical resources to deliver to our customers an even more compelling and diverse set of products, and get them to market more quickly and cost effectively." Dr Park said.

Seagate''s previously announced outlook for the December quarter of $2.2 billion in revenue and earnings per share in the range of $0.53-$0.57, excluding non-cash stock based compensation, remains unchanged. Additionally, Seagate has confirmed its recently announced guidance for fiscal year 2006 earnings per share outlook of approximately $2.00, excluding non-cash stock based compensation.