Reuters
Don't Look Now but There's a Tech IPO
Sunday December 8, 11:42 am ET
By Jake Keaveny
NEW YORK (Reuters) - Stop the presses, there's a technology IPO.
This week all eyes are on Seagate Technology Holdings, the largest U.S. maker
of disk drives. Seagate hopes to raise $1 billion on Tuesday from the biggest
initial public offering by a technology company since July 2001, when consultant
Accenture Ltd. (NYSE:ACN - News) raised $1.9 billion.
The sale deserves attention for a
couple of reasons.
First, it comes amid one of the
weakest IPO markets on memory.
Technology IPOs have only raised
$265 million all year -- a fraction
of the $10 billion generated in
2001 or the $30 billion from 2000.
Market watchers say Seagate's
IPO could help crack open
access to capital markets for
cash-hungry technology
companies. Seagate, with an
expected $6 billion market value,
doesn't compare with younger start-ups that are squeezed for capital. But
investment in the battered disk-drive industry would reflect a bet by investors that
technology in general has seen its worst.
Also, the sale would be a huge success for the group of buyout funds that took
Seagate private just two years ago. Groups like J.P. Morgan (NYSE:JPM -
News), Goldman Sachs & Co. (NYSE:GS - News) and Texas Pacific Group
stand to multiply their returns after buying Seagate on the cheap and building it
back up.
"I think much of Wall Street is going to have to be impressed with this group,"
said David Menlow, president of newsletter IPOfinancial.com.
Menlow said Seagate is more of an individual turnaround story than a measure
of investors' willingness to get back into technology stocks.
But with the backdrop of a recent rally in the technology-heavy Nasdaq stock
index, the successful sale of Seagate's shares would probably encourage other
technology companies to try to tap the stock market, he said.
Managing the IPO are investment banks Morgan Stanley (NYSE:MWD - News)
and Citigroup's (NYSE:C - News) Salomon Smith Barney unit.
SEAGATE'S TURNAROUND
Seagate went private in March 2000 in one of the largest management buyouts
in high-tech history.
Silver Lake Partners, an investment fund led by former Bear Stearns technology
banker and current Seagate Chief Executive Steve Luczo, led a group that paid
about $1.9 billion for the company's disk-drive operations.
Seagate aims to sell 72.5 million shares at $13 to $15 each. At the $14
mid-point of the expected range, the company would have a market
capitalization of about $6 billion, triple what Silver Lake and its partners paid for
it.
At the time Seagate was acquired, it was suffering from steep price
competition. By taking it private, management was expected to cut prices and
pare down its balance sheet without having to worry about the scrutiny that
comes with being a public company.
Menlow and other analysts said Seagate has been a success case, but the
improvements to its bottom line are less than clear.
In the year ended in June, Seagate had net income of $153 million on $6.1
billion of revenue, according to its prospectus. That compares with $214 million
of net income on revenue of $6.2 billion during the comparable 2000 period that
came largely before the buyout.
However, last year's bottom line was a dramatic improvement from the more
than $500 million that Seagate lost in the year ended July 2001.
The disk-drive space is still fiercely competitive, and the company is directly
linked to a still-weak computer industry, analysts said.
However, the industry has consolidated dramatically. Analysts said Seagate
only has two main competitors, Maxtor Corp. (NYSE:MXO - News) and Western
Digital Corp. (NYSE:WDC - News), so it faces less pressure to compete on
price.
Investors in Seagate would be buying into the industry's biggest player. It had a
29 percent market share for the nine months ended in September, up from 23
percent in 2001, according to its prospectus.
In what should be a helpful boost, share prices in both Western Digital and
Maxtor have followed the Nasdaq and rebounded sharply since mid-October.
Maxtor has more than doubled since early October, and Western Digital had
almost doubled since late September before falling last week. |
