China Eases Controls on Western Digital

BEIJING—China has loosened some restrictions on Western Digital Corp.'s acquisition of rival Hitachi Global Storage Technologies Ltd., weeks after the disk-drive maker agreed to sell a stake to an influential Chinese state-run company.

China's commerce ministry said Monday that it would now allow U.S.-based Western Digital and Hitachi Global Storage to combine their manufacturing and research operations, although they must maintain separate sales and branding for at least two years. Western Digital may reapply for combined sales and branding in two years, it said.

Western Digital said it expects to save $400 million a year on its operating expenses, while reaping additional savings in the cost of goods sold. The company estimated it would take one to two years to achieve most of these savings.

"The decision announced today positions us for continued growth and long-term value creation," Western Digital Chief Executive Steve Milligan said.

Chinese regulators previously approved the 2012 deal on the condition that the companies continued to run as separate entities. This had prevented Western Digital from realizing cost savings from combined operations. Like antitrust regulators in the U.S. and Europe, Chinese officials have increasingly weighed in on deals that would impact market share in China even if the companies combining are outside its borders.

The decision comes less than a month after Western Digital agreed to sell a 15% stake for $3.78 billion to an arm of Chinese state-owned tech investment firm Tsinghua Unigroup Ltd. Zhao Weiguo, the chairman of Tsinghua Unigroup, said with a Western Digital spokesman Monday that the investment wasn't a factor in the Chinese regulatory decision.

Western Digital last year renewed its request for Chinese regulators to allow the integration of the former unit of Japan's Hitachi Ltd. The company said at the end of last year that it had made "significant progress" with Chinese regulators, after agreeing to pay a $100,000 penalty and making some structural adjustments.

The U.S. disk-drive maker also announced management changes Monday as part of the beginning of integration. Mike Cordano, the former president of the Hitachi unit, was appointed president and chief operating officer of Western Digital. Jim Murphy, former president of the WD subsidiary, will lead the storage devices business unit. Mr. Milligan will remain CEO.

Western Digital had earlier sold part of its business to Toshiba to gain approval from U.S. and European regulators for the Hitachi deal.

Write to Eva Dou at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 19, 2015 09:15 ET (13:15 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.