Why Can't Seagate Sell Itself?

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Just because a company makes an official announcement of buyout talks doesn't automatically make anybody sign on the dotted line. Independent sources talking to various news services are saying that talks between Seagate Technology (Nasdaq: STX  ) and a private equity consortium have essentially broken down and may be beyond repair.

Superstar fundmeister Kohlberg Kravis Roberts has stepped away from the table. Bain Capital was reportedly involved and may or may not be interested these days. The Wall Street Journal says that remaining capital manager TPG Capital is left scrambling for equity partners because it can't afford to swallow Seagate all on its own. I'm stunned to hear that a lack of funds would end up scuttling the deal.

I suppose the usual banking suspects see hard-drive technology as a waning business, soon to be permanently replaced by SSD units built around flash memory chips. If that's the deal breaker stopping investors from picking up a top-notch business for pennies on the dollar, I'm afraid they got it all wrong. Not only is Seagate already making forays into pure SSD and hybrid flash-and-magnetic-disc drives already to secure a place of relevance in any storage future, but traditional hard drives will probably always be around in mass quantities because it's such a darn cheap medium.

Besides, memory specialists Micron Technology (Nasdaq: MU  ) and SanDisk (Nasdaq: SNDK  ) are just as affordable as Seagate and Western Digital (NYSE: WDC  ) on a variety of metrics; the obsolescence argument doesn't hold water. Then again, given the valuations across the industry, memory companies might not be a bad play either.

I'm dying to either see a deal happening or everything falling apart so the players involved can talk about their thinking. Flipping Seagate for a handsome profit in a leveraged buyout looks like easy money, and I only wish I had $10 billion or so burning a hole in my pocket so I could try it myself. Nice problem to have, right?

Could you put $10 billion to better use that buying a storage specialist on the cheap and selling it for twice the price or more in a couple of years? Share your wild strategies in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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  • Report this Comment On October 30, 2010, at 12:35 PM, MegaEurope wrote:

    Buy WDC with $4B in cash and $5B in debt. Pay off $1.5B in bridge financing immediately from cash. You should have enough cash left over to buy controlling stakes in STEC and XRTX. The market will love your growth story when you IPO in 5 years, giving you a multiple of 15.

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