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November 30, 2010, 9:52 AM EST
By Aaron Ricadela and Jason Kelly
Nov. 30 (Bloomberg) -- Seagate Technology Plc, the world’s largest maker of disk drives, fell as much as 5.1 percent in Nasdaq Stock Market trading after the company ended talks to be taken private.
“Management and the board have chosen to cease discussions concerning a private equity-led leveraged buyout,” Chief Executive Officer Steve Luczo said yesterday in a statement.
Talks with TPG Capital collapsed after the buyout firm wasn’t able to find other partners to raise enough equity financing for the takeover, according to a person familiar with the matter, who declined to be identified because the negotiations were private. The diminishing need for computer disk drives may have made a Seagate deal less attractive to some buyers, said Jayson Noland, an analyst at Robert W. Baird & Co.
“If you’re private-equity money and need to think about the next five to seven years, that likely made them a little more reluctant to take the bid higher,” said the San Francisco-based analyst, who rates Seagate shares “neutral” and doesn’t own any.
Seagate dropped 56 cents, or 4 percent, to $13.30 at 9:49 a.m. New York time. Earlier it fell as low as $13.15.
The failed buyout attempt is the second for Seagate this year. TPG restarted takeover discussions with the company after an earlier proposal with Silver Lake broke down, people familiar with the matter said earlier this year. KKR & Co. and Bain Capital LLC were interested in the new deal, though KKR signaled in October that it might drop out, the people said.
Share Buyback
In its statement yesterday, Seagate also authorized the repurchase of as much as $2 billion of its stock.
“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,” Luczo said.
The disk-drive maker may be a difficult candidate for a leveraged buyout because it faces high capital costs and many customers are relying on a different kind of memory, said Rajesh Ghai, an analyst at ThinkEquity LLC. Apple Inc.’s iPad tablet computer uses flash-memory storage instead of a hard disk, and more personal-computer users are accessing their applications and data over the Internet, making local storage less important.
Still, most PCs continue to rely on disk drives, and Seagate is predicting improving demand for the devices. Revenue in the current quarter will be at least $2.7 billion, Seagate said in the statement. That tops the $2.66 billion estimated by analysts in a Bloomberg survey.
High Premium?
Private-equity buyers may have been reluctant to pay a high premium for Seagate, said Matt Bryson, an analyst at Avian Securities LLC in Boston, who has a neutral rating on Seagate shares and doesn’t own them. The stock has tumbled 24 percent this year, even as sales and profit rebounds from the recession.
“If you think about a private-equity firm where they have to assume a risk premium, the payback has to be taking Seagate public again,” Bryson said. “How do you justify anything above $15 or $16?”
The company said Oct. 14 that it was in talks to be taken private, without identifying the parties involved. A deal would have been Seagate’s second leveraged buyout in a decade.
Another concern is competition from rivals such as Western Digital Corp., which threatens to squeeze profit. Excluding some costs, earnings were 37 cents last quarter, compared with the 46-cent average of estimates compiled by Bloomberg. Sales rose 1.3 percent to $2.7 billion.
“The free cash flow for a business is going to be extremely uncertain going forward,” said Ghai, who is based in San Francisco. He has a “hold” rating on Seagate shares and doesn’t own them himself. The company was unlikely to generate enough cash to pay down the debt it would take on in a leveraged buyout, Ghai said.
“The private equity investors took a look at the outlook for the industry, which is pretty bleak,” he said.
--With assistance from Ian King in San Francisco. Editors: Nick Turner, Lisa Wolfson
To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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Nov. 30 (Bloomberg) -- Seagate Technology Plc, the world’s largest maker of disk drives, fell as much as 5.1 percent in Nasdaq Stock Market trading after the company ended talks to be taken private.
“Management and the board have chosen to cease discussions concerning a private equity-led leveraged buyout,” Chief Executive Officer Steve Luczo said yesterday in a statement.
Talks with TPG Capital collapsed after the buyout firm wasn’t able to find other partners to raise enough equity financing for the takeover, according to a person familiar with the matter, who declined to be identified because the negotiations were private. The diminishing need for computer disk drives may have made a Seagate deal less attractive to some buyers, said Jayson Noland, an analyst at Robert W. Baird & Co.
“If you’re private-equity money and need to think about the next five to seven years, that likely made them a little more reluctant to take the bid higher,” said the San Francisco-based analyst, who rates Seagate shares “neutral” and doesn’t own any.
Seagate dropped 56 cents, or 4 percent, to $13.30 at 9:49 a.m. New York time. Earlier it fell as low as $13.15.
The failed buyout attempt is the second for Seagate this year. TPG restarted takeover discussions with the company after an earlier proposal with Silver Lake broke down, people familiar with the matter said earlier this year. KKR & Co. and Bain Capital LLC were interested in the new deal, though KKR signaled in October that it might drop out, the people said.
Share Buyback
In its statement yesterday, Seagate also authorized the repurchase of as much as $2 billion of its stock.
“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,” Luczo said.
The disk-drive maker may be a difficult candidate for a leveraged buyout because it faces high capital costs and many customers are relying on a different kind of memory, said Rajesh Ghai, an analyst at ThinkEquity LLC. Apple Inc.’s iPad tablet computer uses flash-memory storage instead of a hard disk, and more personal-computer users are accessing their applications and data over the Internet, making local storage less important.
Still, most PCs continue to rely on disk drives, and Seagate is predicting improving demand for the devices. Revenue in the current quarter will be at least $2.7 billion, Seagate said in the statement. That tops the $2.66 billion estimated by analysts in a Bloomberg survey.
High Premium?
Private-equity buyers may have been reluctant to pay a high premium for Seagate, said Matt Bryson, an analyst at Avian Securities LLC in Boston, who has a neutral rating on Seagate shares and doesn’t own them. The stock has tumbled 24 percent this year, even as sales and profit rebounds from the recession.
“If you think about a private-equity firm where they have to assume a risk premium, the payback has to be taking Seagate public again,” Bryson said. “How do you justify anything above $15 or $16?”
The company said Oct. 14 that it was in talks to be taken private, without identifying the parties involved. A deal would have been Seagate’s second leveraged buyout in a decade.
Another concern is competition from rivals such as Western Digital Corp., which threatens to squeeze profit. Excluding some costs, earnings were 37 cents last quarter, compared with the 46-cent average of estimates compiled by Bloomberg. Sales rose 1.3 percent to $2.7 billion.
“The free cash flow for a business is going to be extremely uncertain going forward,” said Ghai, who is based in San Francisco. He has a “hold” rating on Seagate shares and doesn’t own them himself. The company was unlikely to generate enough cash to pay down the debt it would take on in a leveraged buyout, Ghai said.
“The private equity investors took a look at the outlook for the industry, which is pretty bleak,” he said.
--With assistance from Ian King in San Francisco. Editors: Nick Turner, Lisa Wolfson
To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net
To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net
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