Deals

Return of the deals? Seagate buyout talks heat up

Private equity firms TPG Capital and KKR are reportedly in talks to acquire hard-drive manufacturer Seagate, adding further credibility to rumors that cropped up yesterday that Seagate will be going private for the second time in a decade, according to a report by Bloomberg News.

The private firms will offer Seagate $16 per share, a 26 percent premium over yesterday’s closing price and a 4 percent premium over its current share price, according to the Bloomberg report. Seagate’s shares jumped nearly 21 percent in extended trading yesterday when the rumors of a Seagate buyout first cropped up. That would put Seagate’s value on the stock market at about $7.4 billion — up from its current value of $7.14 billion — based on its market cap.

This is the second batch of rumors involving a large company that might be taken private just this week. Silver Lake Partners, which had taken Seagate private the first time in 2000, was reportedly in talks with AOL and Blackstone Group LP to acquire Yahoo, though sources subsequently told the New York Times that Blackstone was no longer actively considering a deal.

The outcome of the Seagate deal could have an impact on Yahoo talks, in that the private-equity groups involved may not want to deploy so much capital in large deals in the broader tech sector at once.

Old “spin-up” drives that use magnetic platters like Seagate’s have lost momentum since solid state drives, which are faster and lack moving parts, have become increasingly popular. Solid-state drives are still much more expensive, but are typically less power-hungry and boot more quickly. Solid-state drives are particularly popular in gadgets, as flash memory is now most often used in phones and MP3 players that once used hard drives.

While such shifts in the market are inevitable in technology, public-market investors don’t always take them well, and they may well be easier to weather as a private concern. Seagate has already gone private once, when Silver Lake Partners and TPG Capital paid $20 billion for the company. It later went public again in 2002, listed at $12 per share.

After losing about $3.1 billion in its fiscal year ending July 2009, Seagate posted net income of about $1.6 billion for its 2010 fiscal year earlier this summer, according to its most recent 10-K filing with the Securities and Exchange commission. Seagate’s revenue was up 16 percent from 2009 to 2010, but still down 10 percent from an all-time high of $12.7 billion in 2008.