WOW!!!!!! If I didn't know better Sam, I might think you are mad or something :o)
What we have here is a case of dashed expectations, but it is the expectations which lack a foundation. We should remember that SL came out of the investment banking business. These are the pelagic sharks of the business world and, like sharks, all they know is eating. Smooth dudes, even attractive as a beautiful sleek shark can also be, but let us not forget the single instinct at work here is the instinct to chomp.
The more interesting question is the pragmatic valuation of Seagate's disk operations. For the other things, like various stock holdings, one can largely mark them to our recently more dynamic market. But the disk business itself is not so easy to value. Seagate is rather unique in that it is the only vertical operation us unwashed folk can examine financially. IBM's disk business is buried in the big picture, as are the Japanese operations.
One might conservatively justify a PSR of .8 which would give you 5.4 billion or $25/shr.
If we look at book value minus the VRTS/other asset elements, we see something on the order of 2 billion or $9/shr. A PB ratio of 2 would not be outlandish and that gets you $18/shr.
But what bugs me about Seagate is the size of their ppe commitment relative to revenue. Last year they had 1.7 billion ppe supporting 6.8 billion in revenue. In 1997 they had 1.8 billion supporting 8.9 billion. By contrast, last year MXTR had 132 million ppe supporting 2.4 billion in revenue and in 1997 had 99 million ppe supporting 1.4 billion in revenue. While Seagate has gone from $5 rev per dollar of ppe to $4, MXTR has gone from $14 to $19. Granted that an integrated business takes a lot more ppe than the virtual one, the SEG trend is still heading in the wrong direction. My own conjecture is that Seagate has somewhere between a quarter and a half a billion in excess capacity still sitting on the books and that is why the numbers don't look coherent and so I personally value their disk business at something closer to $12-15/shr.
I trust that as this market continues to melt down its going to become increasingly difficult for anyone holding Seagate to ignore the value of the disk business, which is not melting down (now that is, it puddled a long time ago).
Indeed, if we can get back down into the 30's I'll be willing to buy back the shares I swapped into HDD a month or so too early :o).
Come on guys.....forget the outrage. Lets just focus on what this turkey is actually worth and see if maybe we don't want to effectively outbid this screwy LBO. All its going to take to do that is a market price for SEG greater than the LBO price and we will surely get there in the 30's if not before.
Best Regards.....Tom |
