By Lisa Johnston
New products on display at the American International Toy Fair, held in N
Furthering the consolidation of the recordable optical media market, Imation agreed to purchase TDK's media business brand in a cash and stock deal worth up to $370 million.
The deal includes the use of TDK's brand name for current and future recording media products including magnetic tape, optical media, flash media and accessories. The boards of both companies have approved the transaction.
Tokyo-based TDK will retain its research and development, manufacturing and OEM business.
TDK will receive approximately $280 million in Imation common stock and $20 million in cash, with potential for payment of up to an additional $70 million based on future financial performance. The deal is expected to close in the third quarter.
The move comes less than a year after Imation, a major supplier to the commercial market, completed a deal for Memorex, giving them a significant stake in the U.S. consumer optical media market and a No. 1 share worldwide in optical discs, according to Imation. The TDK acquisition strengthens that position, Imation chief financial officer Paul Zeller told analysts in a conference call, noting the brand's strong share in Europe and Japan. "With the Imation, Memorex and TDK brands, we now have a combined 30 percent global share across the formats," Zeller said.
The deal also gives Imation its first entry to the flash media market and significantly strengthens Imation's position in Blu-ray, as TDK is a member of the Blu-ray Disc Association and a leading supplier to the market. Calling TDK "a leader in Blu-ray, including patents and intellectual property," Imation president/CEO Frank Rossomanno cited continued price erosion in the mature CD and DVD markets as a driver to the deal. Long-term, Rossomanno predicted "significant upside" in Blu-ray and flash.
Zeller estimated TDK's media business at about $670 million in revenues in 2006.
TDK becomes the largest shareholder of Imation and will get a seat on Imation's board.
Zeller highlighted synergies in the areas of cost reduction, operational efficiencies and supply-chain management. The deal also includes "a committed understanding" of supply agreements from TDK's manufacturing side and long-term pricing benefits. "As a significant owner, [TDK] has a significant interest in seeing us be profitable," Zeller told analysts.
For more details on the deal, see www.TWICE.com.
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