Seagate's acquisition comes as the market for digital storage is booming. Corporations and individuals are saving vast numbers of files that are ever increasing in size, especially with the rising number of audio and video files.
Still, the disk drive market - which has been on a faster technology track than the computer chip world as measured by the rate of increase of storage density - has been brutally competitive with dozens of foreign entrants keeping prices low.
Under the terms of the deal, Maxtor shareholders will receive 0.37 share of Seagate stock, the equivalent of $7.25 a share. That is a 60 percent premium over the price of Maxtor's shares.
When the deal is completed Seagate investors will own about 84 percent of the combined company and Maxtor shareholders about 16 percent.
For Seagate, the deal is rather is a gamble that it can utilize its manufacturing infrastructure to make Maxtor's disk drives at a lower cost.
Maxtor lost money in four of the five most recent quarters and two of the last three years. The most significant challenge for Maxtor, based in Milpitas, Calif., is that it has not been a factor in the market for mobile disk drives, which are used in portable computers and in MP3 music players like the Apple iPod.
In the slower-growing but still strong market for desktop drives, Seagate has been the market leader followed by Western Digital and Maxtor.