By Zacks Equity Research
   

Seagate Technology (STX) announced that it will acquire a majority stake of rival LaCie S.A., for $186.0 million. France-based LaCie is a well known consumer storage device maker. The deal is expected to be wrapped up by September 2012, after securing regulatory approval regarding anti-trust and foreign investment requirements.

Seagate will initially purchase the entire holding of LaCie's Chairman and CEO Philippe Spruch and his affiliate. The transfer of holdings will give Seagate roughly 64.5%, or the controlling stake in LaCie. Post completion, Seagate will make an offer for the remaining shares. Spruch will be joining Seagate's board and will head the company's newly acquired unit.

LaCie's product lines include external hard drives, RAID arrays, optical drives, Flash Drives, and computer monitors. However, the company is recognized for hard drives of different capacities and specifications. LaCie's drives are mostly used in Apple (AAPL) MacBooks. Also, LaCie's retail exposure and strong distribution capabilities are worth mentioning.

Considering this, there remains no doubt that this acquisition is a big win for Seagate. With LaCie’s widely-accepted product lines, Seagate will find it easy to better penetrate the consumer storage market, specifically in Europe and Japan. Additionally, it will also be in a position to gain from the growth of Apple's MacBook.

The deal shows that the consolidation in the storage market is an ongoing trend. Specifically, the hard drive industry is getting smaller. In March 2011, Western Digital Corp. (WDC) took over Hitachi Ltd.'s Global Storage Technology unit for a hefty $4.8 billion. Seagate, too followed the same path and acquired Samsung's HDD business for a sum of $1.4 billion, in April 2011.

The disk drive market is highly competitive, and has experienced drastic pricing pressure due to supply and demand volatility. Moreover, hard disk companies might be vulnerable to additional pressures as customers such as tablet PC makers choose flash cards for storage purposes instead of the customary hard disks. The situation may compel companies to cut hard disk prices, which will hurt margins. In such a situation, companies can go in for acquisitions to further consolidate the market and alleviate competition.

Seagate for its part should regain its strength with LaCie and Samsung HDD. Though the HDD vendor expects neutral effect on earnings that contribution from LaCie will not be accretive to its earnings until June 2013, the acquired capabilities will unfold new potential in the long term.

Currently, Seagate has a Zacks No. 2 Rank implying a short-term "buy" recommendation.

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