Disk head maker Applied Magnetics Corp, Goleta, California has cheekily popped up with a hostile bid for its much bigger rival, Read-Rite Corp, offering 0.679 of a share of Applied Magnetics for each Read-Rite share out, and valuing the latter at $37.50 each and the company at $1.76bn – except that such valuations have a habit of melting like snow in summer when an upstart bids for a much bigger company – and its shares immediately shed $2.25 to $53, cutting the value to $36 even, $1.69bn all told. Wall Street further hammered Applied’s shares yesterday, closing to leave the value of the bid at $1.53bn ($32.68 a share). Applied says it has been trying to secure an agreed deal for nine months; Milpitas- based Read-Rite says it is very surprised to receive the bid, and that its board was meeting yesterday to review it. Applied plans to proceed with a consent solicitation aimed at replacing Read-Rite’s current board with a puppet one to endorse the transaction. Applied reckons the combination would result in a disk head supplier with $1.8bn sales a year, and a market capitalization of of $3.4bn, with cost savings, manufacturing efficiencies and revenue enhancements from the combination providing incremental gains in pre-tax profit of more than $100m in the 12 months following the transaction. Both companies close their books at the end of September and both have been seeing declining sales. Applied reported net profit of $32.2m last fiscal, Read-Rite lost $42.9m after restructuring charges of $52m on sales of $1.00bn. Both companies are coming under pressure from Seagate Technology Inc’s heavy investment in and rapid expansion of, its own thin-film head business, but Applied claims the proposed combination would still account for the world’s biggest output of thin-film heads. Invented by IBM Corp, thin- film heads enable substantially more data to be stored per square inch than do magneto-resistive heads, making them increasingly vital in disks for notebooks.