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Seagate mulls buyout deal
Rick Merritt
10/15/2010 9:21 AM EDT
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.
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.
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rick.merritt
10/15/2010 12:12 PM EDT
How can hard drive makers escape the hard times ahead?
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T in Az
10/16/2010 12:25 AM EDT
An epiphany is needed, and Seagate isn't the only one.
Why is it that fewer people are interested in their old pig with new lipstick?
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Warren
10/16/2010 1:53 PM EDT
Come on now... the pundits are saying that there is substantial interest in Sarah Palin.
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Couldn't resist. My apologies to Sarah Palin. But if "favorable" ratings were stock then Mrs. Palin is in better shape than Seagate.
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Certainly no lack of interest in storage... and I wouldn't exactly equate all HD manufactures; WD hit an 5-year high at the very end of 2009.
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goafrit
10/15/2010 8:21 PM EDT
Going private will not remove the competition. It adds no major value to the company than to enrich the private equity guys. If you took a company private in 2000 and returned it public in 2002 and now you have to do it again, it means, nothing positive happened. It is just the mirage of hedge funds and private equities that destroy values for short term gains.
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resistion
10/17/2010 1:51 AM EDT
Would have thought cloud servers still overwhelmingly favor HDDs.
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rick.merritt
10/18/2010 12:22 AM EDT
HDDs are expected to remain the lowest cost per Gbyte solution for the foreseeable future and as such be the workhorse of high capacity applications. But the OEM community has driven this buisness to very slim margins and HDDs have unique and complex tech requirements to stay on their areal density growth path--while SSDs steal away some high margin biz in high performance niches--so its a tough business.
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Dr. Phil
10/18/2010 10:02 PM EDT
Besides spinning HD's help stabilize the Space Station. I had hopes for the SSD but am not impressed yet. I did drop a 10k in for OS drive and have enjoyed it. I am not sure we need blistering speeds yet. Too much real time for me at the cash register already.(grin)
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numberone2
10/19/2010 3:30 AM EDT
Does this mean they are going to quit being tax cheats such as by reincorporating somewhere other than the Grand Caymans, or will this move somehow allow them to reduce their tax burden further?
I will personally continue to keep my money in Orange Country by buying WD, despite their p.o.s. garbage bundled backup software.
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