"We view the announced sale of the HDD business as extremely positive for Hitachi," Shinji Harada, an analyst at Citigroup Global Markets Japan, wrote in a note to clients.

"(The terms of the deal) are good and it is a complete sale, eliminating the potential for problems down the road," he said.

Under the transaction, the world's No. 2 hard drive maker, Western Digital, will pay $3.5 billion in cash and $750 million in stock for Hitachi Global Storage Technologies.

Hitachi had been looking to list its unit to tone down its involvement in volatile businesses.

"The complete sale of the unit is preferable to majority ownership after an IPO," Credit Suisse analyst Hideyuki Maekawa wrote in a note.

"The price allows Hitachi to recoup the cost of acquiring IBM's HDD business and all accumulated losses," he said.

The unit was born out of Hitachi's $2 billion purchase of the hard drive business of IBM in 2002. The business posted five years of losses until turning an operating profit in 2008 and 2009.

As of 0103 GMT, shares of Hitachi were up 2.2 percent at 516 yen, outperforming a 0.3 percent gain in the benchmark Nikkei average.