Seagate is to acquire Maxtor in an all-stock transaction worth around $1.9 billion, the companies have revealed.

By sharing research and development spending, Seagate and Maxtor hope to expand the range of products they offer. The deal promises "operating efficiencies", and will lead to cost savings of around $300 million a year, they said.

However, history has shown that when two hard disk drive makers merge, their combined revenue also drops, the companies warned. Nevertheless, Seagate expects the deal will boost earnings per share by between 10 per cent and 20 per cent after the first year of joint operations, it said.

The deal, unanimously approved by the both companies' boards of directors, will give Seagate shareholders control of about 84 per cent of the combined company, they said. If the transaction receives the approval of shareholders and regulators, it should close in the second half of 2006, the companies said.

Seagate's management team will remain in place, while Maxtor chairman and CEO C.S. Park will become a director of Seagate when the deal completes.