Quantum Corp, the world’s largest tape drive supplier, and the second biggest hard disk drive company in the world, is to pay $300m in stock for ATL Products Inc, the tape-automation library company from Irvine in California. The deal gives ATL’s shareholders around a 17% premium over Tuesday’s closing price of $29. Whether or not this is sufficient compensation for becoming involved in Quantum’s disk drive troubles and its slower moving share price will be for them to vote on in due course. Quantum’s revenues have grown by a compound 33% since 1993, but this has slowed to just 20% in the last year, due in part to the immense difficulties encountered in the disk drive market, where all the big players have been slashing prices to off-load inventory. ATL has grown revenues by 50% annually and, by Quantum’s own admission, it has a robust and highly successful business model. So much so that ATL will be left alone to operate as an arm’s length subsidiary, with the management team intact, and it will take Quantum’s existing tape-automation business under its wing. ATL covers the high-end and mid-range business while Quantum currently covers entry level systems. This, says ATL chief executive officer Kevin Daly, is the primary reason behind his accepting Quantum’s offer. Daly’s salary package and bonus upon completion of the merger were not disclosed. Although the deal is to be structured as a stock swap, Quantum has simultaneously announced a share repurchase scheme covering up to 14 million ordinary shares, roughly the amount to be offered to ATL’s shareholders. Why the company has chosen to structure the deal in this way instead of simply paying cash wasn’t made clear, and no- one at Quantum was available to clarify the matter. Perhaps Quantum is hoping to buy back the 14 million shares it issues to ATL more cheaply in six months time? The two companies are aiming to complete the deal by September, subject to shareholder approval.
