Seagate to buy Maxtor

Storage giant Seagate is buying rival Maxtor, in a deal worth $1.9bn (£1.08bn).

The two companies announced the deal on Wednesday morning. Maxtor's board of directors has already accepted the offer, but it must first be approved by shareholders and regulators.

If approved, the new company will still be called Seagate, with today's Seagate shareholders owning approximately 84 percent of the combined company. Maxtor shareholders will be left with approximately 16 percent.

Seagate chief executive Bill Watkins claimed that the merger would mean customers could buy better products at a cheaper price. "With the increased scale of the combined company, we can reduce overall product costs and provide more innovative products at more competitive prices," said Watkins in a statement.

Seagate, already the market leader in the hard drive business, predicted that the takeover would boost its earnings by up to 20 percent. Maxtor, though, made a $17m loss in the third quarter of this year, which it said was partly due to problems producing higher-capacity drives.

Mergers in the IT space have a chequered history — HP's purchase of Compaq, for example — but the financial markets appear to have responded positively to the news from Seagate.

Shares in Maxtor soared by 47 percent in trading in Germany, to around 5.60 Euros (the equivalent of $6.66). This is less than Seagate's offer of $7.25 per share, reflecting the fact that the takeover has yet to be approved.