Seagate Considers Potential Buyout Offer

One of the biggest names in the hard disc market is considering going private, after Seagate Technology received approaches from private equity firms.

In a statement, Seagate said it had received a “preliminary indication of interest” from an unnamed party for a leveraged buyout and its board is evaluating the offer and other alternatives.

“There is no assurance that the company will receive a formal offer or that any transaction will take place,” the hard drive maker said.

The company refused to identify the interested buyer, or comment on any of the terms being discussed.

Largest Tech Deal?

However, the Bloomberg news service named private equity firms Texas Pacific Group Capital and Kohlberg Kravis Roberts as the firms in talks to buy Seagate, citing anonymous sources with direct knowledge of the discussions. According to the Bloomberg article, the two private equity firms are considering an offer of about $16 (£10) per share. Seagate’s share price closed at $12.69 (£7.93) on 14 October, prior to the announcement, putting Seagate’s total value at $7.55 billion (£4.8 billion) under such an offer.

At that price, taking Seagate private would be one of the largest private equity deals in tech history.

News of a potential buyout sent investors into a frenzy during trading 15 October, with Seagate stock surging 22 percent to close at $15.51 (£9.69). Seagate ended the week with a stock market value of $7.2 billion (£4.5 billion).

Industry watchers have worried about the impact on the HDD (hard disc drive) business as companies shift away from the trusty magnetic disk drives toward faster and more rugged flash-based alternatives. The immense popularity of mobile devices and tablets has also impacted PC and laptop sales.

“We remain concerned that consequent to the ‘tablet invasion,’ the PC segment is likely to stay weak for all HDD vendors in the historically stronger second half of this calendar year,” ThinkEquity analyst Rajesh Ghai wrote in a research note, hours before Seagate announced it was in buyout talks.

Cyclical Swings

Kaushik Roy, an analyst with Wedbush Securities, said a private equity firm could be interested enough in Seagate to wait out the downturn in demand for hard drives. The hard drive market is notorious for its cyclical swings of high demand and over-capacity.

“The weakness in the stock is in end-demand and market-related, it’s not that the company is misexecuting. So private equity is looking at it and saying, geez, these are cheap stocks,” Roy said.

Roy and other analysts have said they believe companies such as Seagate and Western Digital can survive the SSD challenge and develop their own flash storage products.

The HDD industry is dominated by three players, Seagate, Western Digital and Hitachi. Seagate holds 30 percent of the overall hard drive market and close to 60 percent of the enterprise storage market, according to ThinkEquity.