To say that negotiations are protracted is an understatement. It was almost the same time last year when I covered this story. Western Digital was all set and ready to dole out billions of cash and stock options when they were told to wait for a little while and amend clauses within the deal. The acquisition of Hitachi may still push through in one condition: WD must sell off all assets used to manufacture desktop hard drives to a competitor.

The Federal Trade Commission sees the current $4.5 billion deal as anti-competitive and likely to bring forth a monopoly in the industry.

FTC’s Condition

To abide by fair business practices, Western Digital will have to let go of their machineries to finally acquire Hitachi Global Storage Technologies as the terms within the contract could significantly weaken competition. To be more specific, the FTC complaint stipulated that the anti-competitive nature of the acquisition violates Section 5 of the FTC Act and Section 7 of the Clayton Act. The worldwide market for desktop hard drives is dominated by three companies: Western Digital, Seagate Technology, and Hitachi. The buyout would prompt a shift in power for Western Digital and price hike could easily follow.

In an FTC press release, Director of the agency’s Bureau of Competition Richard Feinstein elaborated on what the anti-competition law dictates: “Protecting competition in the high-tech marketplace is a high priority for the FTC. This order will ensure that vigorous competition continues in the worldwide market for desktop hard disk drives and that consumers are not faced with higher prices or reduced innovation as a result of this deal.”

China’s Condition

Aside from making sure that FTC approves the deal, Western Digital would also have to summon a nod from China.

And, they did under another condition: Hitachi GST arm will operate independently for two years. The ministry’s ruling includes maintaining its production, research and development, and sales capacity in its entity. Hitachi GST is also expected to carry on with its existing production lines and product and sales teams. Consequently, they are barred from engaging in exchange of sensitive information with Western Digital especially on the matter of prices, supplies or customers. After that period, they could apply for eradication of Hitachi and sail of the HDD market globally.

At present, Western Digital owns 31% of the worldwide market, followed by Seagate Technology with 29%. Hitachi shares 18% in the third spot. Do the math and you’ll see the huge gap that the merger of number one and three will create.