Western Digital (NASDAQ: WDC) gained Monday after announcing a decision from China's Ministry of Commerce enabling the company to integrate substantial portions of its HGST and WD subsidiaries under Western Digital Corporation. Integration activities will begin immediately and are expected to continue over the next 24 month.

Commenting on the news, analyst Aaron C. Rakers of Stifel said, "WD reiterated an expectation for approximately $400M in annual opex savings with additional significant COGS synergies – we have previously estimated in the $200M range. In order to provide some EPS context, we would note that based on our model, including the ~41 million shares to be issued as part of the Unisplendour equity investment, we would arrive at ~$1.75/sh. in EPS accretion if we were to use a $500 million full integration savings (+$2/sh. at $600M). Integration can begin immediately as Western Digital believes it will take 12 24 months to achieve the vast majority of these savings – we believe investors will likely view this as conservative."

Wells Fargo analyst Maynard Um also discussed the announcement in a research note, saying, "We estimate the $400MM in savings will translate into an incremental $1.68 in EPS in F17 and every 100bps of gross margin into $0.59 of EPS (though we see scope for more than 100bps improvement). We think free cash flow (FCF) could improve by more than $500MM, which does not include any opportunities that we expect could arise on working capital efficiencies (we estimate the potential for another $250MM in FCF as every 1 day of cash conversion cycle improvement driven by inventory days equates to roughly $50MM in FCF). Including the potential impact from Unisplendour’s equity stake (not yet closed), we estimate our F17 EPS would increase to at least $8.76 vs our current $7.68 estimate. We believe WDC’s current stronger portfolio positioning, and earnings and cash flow optionality set WDC up well in the market, and we reiterate our Outperform rating."