Does This Buyout Rumor Check Out?

Rumor has it that the storage space is due for a makeover. More specifically, traditional disk drive powerhouse Seagate Technology (Nasdaq: STX  ) has reportedly been seen kicking the virtual tires of new-age solid-state specialist OCZ Technology Group (Nasdaq: OCZ  ) . A merger of three-letter Nasdaq tickers -- what are the chances?

Actually, chances of just such a deal look pretty strong. Seagate is flush with cash thanks to the counterintuitive windfall from last year's flooding disasters in Thailand, and buying OCZ would give the company instant credibility in the budding SSD market. Chief rival Western Digital (Nasdaq: WDC  ) (count 'em: three letters) is too busy rebuilding itself from the Thai damage to make this kind of play right now, though memory-chip specialist Micron Technology (Nasdaq: MU  ) might bid on OCZ to expand its target markets a bit. (Another Nasdaq stock whose ticker isn't a four-letter word? Perish the thought!)

The market loved this idea, sending OCZ shares up by 23% on Thursday. Fellow SSD expert STEC (Nasdaq: STEC  ) was also swept up in speculation, rising 3.4% -- though that gain was wiped out on Friday morning as CEO Manouchehr Moshayedi drew unwanted attention from the SEC on allegations of insider trading. That's freezing cold rain on a potential parade.

The OCZ buyout rumor comes from a familiar but imperfect source. Fuad Abazovic's Fudzilla site is well-connected in the chip industry, but hardly the second coming of The Wall Street Journal's or Bloomberg's anonymous sources.

But the deal looks likely enough to generate coverage from well-respected outlets like Barron's and Forbes, and analyst Tiernan Ray also notes that this rumor is "plausible." So I'm not the only one who thinks this makes sense.

I have a bullish long-term CAPScall on OCZ, originally based on tremendous value and strong stand-alone growth prospects. Now I can add "buyout bait" to that list of catalysts.