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Back in 2010, a group of private equity firms offered to take Seagate Technology (NASDAQ: STX ) private, but the company's management thought the price was too low. It turns out they were right, as Seagate stock has since appreciated nearly 150%. The pursuers have since left the company alone at the same time as hedge fund gurus began buying up shares -- including Eddie Lampert and David Einhorn. But last Friday, some rumors flew that Seagate was once again on the shopping list of buyout firms, sending shares up. Is Seagate for sale?
According to The Fly On The Wall, a Wall Street rumor mill, the big boost in Seagate's shares on Friday was due to takeover chatter. It was enough to send both Seagate and competitor Western Digital up roughly 2 points.
The thing is, I don't find Seagate to be in the kind of deep water that, say, Dell or Best Buy are in. Sure, The PC is dead and yada, yada, yada, but Seagate has incredibly strong cash flows and a growing enterprise hard drive business. It certainly does not need a cash infusion. I suppose the worst thing the company has going against it right now is its affiliation with said PC. But would that be enough to prompt buyout firms to make yet another pass at Seagate? The company was taken private in 2000 by Silver Lake Partners only to IPO again in 2002.
The strongest argument for a buyout is valuation. Even though the company has performed well over the last couple of years, it is still trading at just 4.6 times trailing earnings, and only 6.4 times forward earnings. That's about as cheap as it gets for a technology company of this size. I have long been a Seagate bull, and I expect multiple corrections once the PC-ocalypse noise settles, but I suppose some deep-pocketed firms could see the value in taking the company off the exchanges for the time being.
All things considered, I'm throwing the challenge flag on this rumor. I may be wrong, but I cannot see Seagate management responding favorably to any buyout offer at this point in time. Steve Luczo and team are dedicated to enhancing shareholder value by returning the vast majority of the rich cash flows to investors and investing in future technologies to propel the company into the next era.
Of course, keep an ear close to the ground. Who knows what might pop up with private equity firms looking itchy to shop.
While Seagate Technology pays a significant and growing dividend and seems able to generate the cash flow to support it, a global slowdown in demand for digital memory storage has begun to put pressure on margins. Is Seagate worthy of your investment consideration? The Motley Fool answers this question and more in our most in-depth Seagate research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.