Yes, the June 2003 lock-up release date appears to be the one-way or two-way trading opportunity depending on your point of view of how the market will ultimately value an oligopolistic disk drive industry. It doesn't have the same kind of safety margin of the one-to-many VRTS short in 2000, but it appears good enough. I have no idea of how this stock will trade from the IPO to the lock-up release date; although, I think we agree on the volatility. There is also some chatter that practically all the Wall Street firms are lining up to support this specific IPO as a matter of courtesy to the new LBO kings on the block.
In 2000, this LBO group paid $1.7B for a company with around $6B in sales and $800M in net cash. By the end of Wednesday next week, the LBO group will have cashed in a total of $1.1B while still retaining control over 83% of a cash-flow machine like Seagate. Those 352M shares are easily worth $4.6B (@$13 per share) or even more if STX succeeds in finally imposing price discipline on this extremely undisciplined industry.
I think the key to that industry discipline will be the quality of the collective effort to drive IBM/Hitachi out of the desktop and enterprise drive markets while the JV is still very vulnerable and yet unable to add more industry capacity. IBM appears to be bending over backwards to make the numbers work for Hitachi to the point where Prudential believes that through some sort of minimum purchase commitment, IBM is poised to dump a major supply of drives on the marketplace. From the IBM earnings report, it also appears that IBM has allowed Hitachi more latitude to pick and choose the assets that it is going to take into the 70/30 JV.
For some perspective,it took Seagate 3-4 years to Six Sigma its act, reduce headcount from 110,000 to 45,000 and consolidate 12+ facilities worldwide to just 2. Hitachi is trying to combine two manufacturing disciplines and consolidate 10-12 IBM highly inefficient facilities around the world along with its 3 more efficient, though smaller facilities.
The $5B-$10B question is if the new and improved Seagate has the will to lead that effort. As the dominant enterprise drive vendor, it appears to be the primary beneficiary if IBM and Hitachi decide to abandon the desktop and enterprise and retreat to the mobile market (15% of industry unit shipments, 50%-60% market share) while becoming major customers to Seagate (55%), Fujitsu (20%) and Maxtor (10%) in the enterprise market. Approximately 10%-12% of enterprise market share would be up for grabs which, as you recall, was the the same market share that the old HP left up for grabs when it exited this market in 1994. |
