No one is buying Seagate, neither the private equity firms nor Toshiba. The company canceled the buyout talks and initiated a stock repurchase program.
After weeks of speculation, Seagate Technology has ended
discussions with private equity firms about taking the company private.
Instead, it will start a $2 billion stock repurchase program.
The company made the announcement after the stock market
closed Nov. 29.
Seagate canceled talks "principally because it
determined that the indications of the valuation range were not in the best
interest of the company and its shareholders."
"They couldn't agree on the price," Kaushik
Roy, an analyst with Wedbush Securities, told eWEEK. After issuing its forecast
for earnings, Seagate walked away when the parties couldn't settle on a final
price, he said.
Seagate was undervalued by the market, said Roy,
which was why Steve Luczo, Seagate's CEO,
originally went shopping for a deal in the first place. "If the
market doesn't value you at what you think you are worth, you look for
buyers who do," he said.
Seagate said in a statement that demand for hard disks
had "improved," and it forecast revenues of at least $2.7 billion for
the current quarter. Thomson Reuters has consensus estimates of $2.7 billion in
"Given the strong debt markets, improving business
conditions and other financing options, Seagate has initiated a plan to further
optimize its capital structure to maximize shareholder returns," said Luczo.
Instead of proceeding with a buyout, the board decided to
authorize a $2 billion share repurchasing program. According to Seagate, the
repurchase will be funded through a combination of cash on hand, future cash flow from operations and
"potential alternative sources of financing."
Companies often initiate a buyback to boost stock price, Roy
said. It's a way for the company to give a signal "that our stock is worth
more," he said.
Seagate has been the focus of a lot of speculation since
Oct. 14, when it initially announced that it was in discussions with a
consortium of private
equity firms. As firms dropped out of negotiations, there were reports of
by Toshiba or one of its rivals.
According to Roy,
there was not much left for the private equity firms to do once it took the
company private. "If there was an opportunity to cut fat and make it more
efficient, it makes sense. But there wasn't much left to cut. Luczo had already
done a decent job," he said.
Seagate seemed upbeat about its prospects for the rest of
the quarter. The "total available market in the December 2010 quarter is
approaching 170 million units," the company said.
The optimistic forecast was announced the same day Gartner cut estimates
on PC shipments because of the increasing demand for tablets. Gartner expects
worldwide PC shipments of 352.4 million units in 2010, up 14.3 percent from
2009, but down from initial projections of 17.9 percent. Gartner also said
worldwide PC shipments in 2011 will hit 209 million units, a 15.9 percent
increase over 2010, but less than the initial estimate of 18.1 percent
mild surprise at the outcome. "I was getting the sense that Luczo was
getting it done. If anyone could have done it, it was him," he said.