Quantum Corporation announced its offer to acquire ATL Products, an Irvine, California-based supplier of DLT libraries. Quantum is proposing an all stock transaction valued at approximately $300 million.
Coincident with this announcement, the company also authorized up to a 14 million-share repurchase program intended to offset the dilution caused by the issuance of shares in conjunction with the acquisition. We note the following additional details:
ATL Products would operate as a wholly owned subsidiary of the Quantum Corp. Specialty Storage Products Group (SSPG).
- ATL CEO Kevin Daly will remain CEO of ATL, reporting to Quantum`s president of SSPG, Peter van Cuylenburg. Neal Waddington, who headed Quantum`s Storage Systems Division, will become COO at ATL.
- All of Quantum`s existing storage systems activities will be integrated into ATL.
- The transaction is expected to close in September 1998.
Over the last fiscal year, Quantum has realized increasing returns from a growing DLT business. In fiscal 1998, the DLT product revenues grew to $1.2 billion, and its own storage systems business grew to roughly $90 million. In addition, SSPG has entered into a relationship with Terastor, encompassing the integration of optical data storage technology in future products.
The proposed combination will build upon the previously announced OEM arrangement for ATL to market and sell Quantum automation products. The pairing is complementary. ATL`s current product line is based exclusively on DLT and targeted at the high end of the market; specifically, ATL`s libraries have 2 to 16 tape drives and contain from 30 to over 500 cartridge slots, providing 1 to 10 terabytes of data storage.
By comparison, Quantum`s tape automation product lineup has focused on the low end of the tape storage systems market with autoloaders and compact libraries that typically have one to four tape drives and up to 14 cartridge slots, providing less than a terabyte of storage.
In addition to gaining access to a part of the market it does not currently serve, Quantum will be positioned to leverage an established sales, service, and channel presence. ATL, on the other hand, will gain a larger share in the OEM tape automation business and is free to explore and develop new storage technologies that would be integrated in libraries.
The proposed merger would create a storage system company that has the potential to reach over $250 million in FY99 revenues. ATL Products` revenues grew 63% in FY98 (ending in March) to nearly $100 million. The combined business could very easily exceed the $250 million target with a diversified product lineup, and ATL`s proven track record of executing product rollouts in the tape automation business.
Although IDC believes this merger is a synergistic alliance, it will test the interrelationships among mechanism and system suppliers. In many respects, tape storage is different (certainly relative to HDDs) from the standpoint of cooperation. Hewlett-Packard and StorageTek, for example, manufacture tape mechanisms, sell their own automation products, and have strong OEM relationships. Quantum`s relationships with these types of companies are not likely to be challenged today.
Quantum is making an offensive move in an increasingly competitive market. In order to stave off "ATL fallout," Quantum should continue to invest in the other DLT automation suppliers that have established OEM relationships. Companies such as ADIC, BreeceHill, Exabyte, and Overland Data all integrate DLT into their systems in addition to other midrange tape technologies. The central issue will be the fair flow of product and technical information so all companies integrating DLT mechanisms will be on a level playing field. If Quantum fails, it runs the risk of alienating its OEM customer base at a time when other viable tape formats designed automation become available.
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