The Twists And Turns Of The Seagate Buyout

Who knew that the buyout of Seagate Technologies would be so interesting?

Yesterday, several news reports said that KKR would likely pull out of a group seeking to acquire Seagate. TPG is seen as leading the consortium looking to buy Seagate.

But today, the New York Post is reporting that TPG does have an unnamed partner to replace KKR. The TPG-led group has also lined up more financing than it needs to buy Seagate. Since talks aren’t exclusive, there is also a chance another suitor might drop into the bidding, the New York Post said.

Why does TPG want Seagate so badly? I’m told that TPG considers cloud computing a major area of growth. And Seagate is the leading provider of high end hard disk drives that are used in enterprise storage/systems for cloud infrastructures.

The data storage industry has been consolidating. Remember the HP-Dell war over 3Par? HP eventually won that deal with a $2.4 billion bid.

Seagate is also considered undervalued. The company has a $7.05 billion market cap. Shares are currently trading at $14.89, down 31% from their 52-week high of $21.58. Aaron Rakers, a Stifel Nicolaus analyst, wrote in an Oct. 28 research note that Seagate has a “go-private consideration of $17 a share.”

Rakers, in the note, also thinks there is an 80% chance that a deal for Seagate get’s done. “To be very clear, we continue to believe that there is a high probability that a deal does get done,” he wrote.

This would be the second takeover of Seagate by TPG. In 2000, an investor group comprised of Silver Lake, TPG and Seagate management acquired the company in a three-way merger spinoff with Veritas Software. Seagate then went public in 2002. Last month, Bloomberg News reported that TPG and Silver Lake were in talks to buy Seagate again for $7 billion but discussions had collapsed.  Bain was also interested at the time. Last week, it was KKR and TPG joining up for a Seagate buy but now apparently KKR is out.