SAN JOSE, Calif. – Seagate Technology plc is evaluating an offer to buy the company and take it private. Multiple reports say private equity investors TPG and Kohlberg Kravis Roberts are seeking to acquire the company which is the world's largest maker of hard disk drives.
Seagate released a brief note Thursday saying "its board of directors is evaluating the indication of interest and other strategic alternatives." Seagate hired Morgan Stanley & Co. Inc., Perella Weinberg Partners LP, Wilson Sonsini Goodrich & Rosati and Arthur Cox to provide financial and legal advice on the possible deal.
"There is no assurance that the company will receive a formal offer or that any transaction will take place," the Seagate statement said. The company declined further comment.
In 2000, Silver Lake Partners and TPG (then known as Texas Pacific Group) bought Seagate and took it private. The company went public again in 2002 in a move that netted significant profits for investors.
"The last time Seagate went private, it was able to concentrate on significantly streamlining its supply chain, making investments in factory automation, and making the investments needed to take technology leadership in the hard disk industry," said John Rydning, research director for hard drives at International Data Corp.
"Seagate is vying with Western Digital for market share leadership based on unit shipments," said Rydning. "Both companies hold about 30 percent market share in units, but from a revenue share perspective, Seagate remains the number one hard drive maker with 35 percent revenue share," he added.
All drive makers face a complex and expensive shift to new technologies over the next few years to maintain growth in drive capacity. Earlier this year Seagate and its two closest rivals formed a group to define a road map for next-generation drives.
Seagate's stock price had fallen 21 percent in the past year. Its shares rose 20 percent after the announcement of a possible buyout.
Indeed, Seagate has seen results crater in recent years and analysts say the outlook is not good.
"In FY 08, Segate was able to convert about $12.8 billion in revenues to $1.7 billion in net income [but] fast forward 12 months and revenues dropped to $9.8 billion and the company was below operational break-even," said Ashok Kumar, analysts with Rodman & Renshaw.
"With increasing cannibalization by solid state drives and lower structural growth rates for the industry, we do not forecast any meaningful revenue growth for Seagate," he said. "Top line shrinkage may be a more realistic outlook," he added.