Despite rumors of Toshiba, Western Digital, Hitachi or Samsung buying Seagate Technology, an analyst believes Seagate is still likely to go private.
What's going to happen to Seagate Technology? No one seems to know for sure,
as rumors swirl that instead of going private, the company may be an
acquisition target for Toshiba or one of its rivals. However, Wedbush
Securities analyst Kaushik Roy said a strategic buyout doesn't make sense.
"It is possible, but the probability is very low," Roy
told eWEEK. It's more likely that the rumors are just a way to signal bidders
that there are other interested parties, and the "time to make a deal is
now," he said. Noting Seagate CEO Steve
Luczo's banking background, he said, "It's a game. Steve is not there to
keep the job as a CEO. He is not going to
sit idle until the deal is done. He wants to make money."
The
New
York Post reported Nov. 23 that instead of going private, Seagate might be
acquired by Toshiba, fresh off its $500 million acquisition of
Fujitsu's
hard disk drive business in 2009. As one of the smaller players in the HDD
market, acquiring Seagate would propel the Japanese electronics manufacturer
into the ranks of Western Digital and Hitachi.
The report of a "rival strategic buyer" came shortly on the heels
of a Nov. 22
Reuters
article that indicated Bain Capital has left the
consortium
of private equity firms planning to buy Seagate. It appears that the flurry
of excitement that accompanied Seagate's October announcement about an offer of
a leveraged buyout was a bit premature, as potential partners have been quietly
withdrawing from negotiations.
The private equity consortium to take Seagate private was originally headed
by Texas Pacific Group Capital and Kohlberg Kravis Roberts. According to
Reuters, KKR has reportedly pulled out, as has Silver
Lake, another firm that had been
interested in the deal.
"A deal could still materialize," as TPG Capital is looking for
more partners, according to the Reuters story. At $6.8 billion, it could be the
biggest leveraged buyout deal in history if it goes through.
Although Samsung has the money to buy Seagate, sources told the Post that
Samsung is more interested in growing its semiconductor business and not
"what is viewed as the commodity" disk drive space. It was also
possible that Western Digital and Hitachi
might consider buying Seagate and become the biggest drive manufacturer,
according to the Post.
According to Roy,
Toshiba
and Samsung are primarily SAS vendors focusing on the SSD
(solid-state drive) market. As the largest manufacturer of flash memory used to
make SSDs and the largest SSD manufacturer,
respectively, he didn't think either company would consider Seagate as a strong
addition to their SSD plans. The two
companies are also not known for making large U.S.
acquisitions, he said.
Even though Seagate sells SSDs, it does not manufacture any of the
components required, such as flash memory, controllers or the interface. It
partners with other companies, including Samsung, for its SSD
components, and is not considered a big SSD
player, said Roy.
As for Hitachi, the company
wants to take its
Hitachi
Global Storage Technologies public in the United
States. "In this situation, they aren't
likely to buy companies," said Roy.
A
Western
Digital deal was out of the question because of antitrust issues.
"Granted, there are three other vendors, but Western Digital and Seagate
are the two largest companies in the market," said Roy.
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.
According to the New York Post, TPG Capital is "having difficulty
keeping its investor group together," and lenders are "nervous about
Seagate's earnings projections." The company's earnings for first quarter
of fiscal year 2011 missed expectations, with sales of $2.7 billion at the low
end of the company's guidance range. Seagate's senior executives refrained to
give any guidance for the quarter or next year during the earnings call in
October.
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