Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Seagate Technology -- Ignore unavailable to you. Want to Upgrade?

To: Dwayne Hines who wrote (7722)	12/8/2010 2:29:02 PM
From: Sam	Read Replies (1) \| Respond to of 7841

Unlike what happened the last time Seagate went private: Theft Thwarted at Seagate By ANDREW BARY \| MORE ARTICLES BY AUTHOR Private-equity offer for disk-drive giant was way too low. Shareholders will benefit in the long run. online.barrons.com SEAGATE TECHNOLOGY SHAREHOLDERS should be relieved that management ended talks last week with private-equity firms about a leveraged buyout because the rumored price dramatically undervalued the world's top disk-drive maker. Seagate (ticker: STX) didn't disclose the bid, but it is believed to have been $16 to $18. While that was a premium to Seagate's 52-week low of about 10, hit in August, it was well below its 52-week high of 21, set in March. More importantly, $17 is less than five times Seagate's profit in its fiscal year ended June 2010 and little more than three times trailing earnings before interest, taxes, depreciation and amortization (Ebitda). Most announced LBOs, including recent deals for J. Crew (JCG) and Del Monte Foods (DLM), are being done for at least eight times Ebitda. Seagate finished the week around $15, up about $1.00, as investors reacted to its plan to buy back $2 billion of stock and to its favorable financial guidance for the current quarter. Seagate's guidance of at least $2.7 billion in revenue and a gross margin of at least 19.5% imply over 33 cents a share in profit, according to Needham analyst Richard Kugele. He boosted his fiscal 2011 profit estimate to $1.40 from $1.14 a share and thinks Seagate can earn $2.35 in its fiscal 2012. "Industry business conditions are getting better," Kugele said, adding that the buyback program could be executed over two years and would retire more than 25% of Seagate's shares. He has a $19 price target, but that could prove conservative if pricing and margins improve. Seagate has a good balance sheet, with $2.2 billion of cash and a like amount of debt. Its market value is now $7 billion. Seagate indicated in its news release last week that it may take on debt to execute the buyback–perhaps because much of its cash is overseas. Seagate essentially plans to leverage its balance sheet and give shareholders–and not private-equity investors–the benefit of any improvement in its business. That's what many companies approached by private-equity outfits should do, but are afraid to consider. Kugele says that with a lower share count, Seagate could earn more than $3 a share, even if margins stay in a historical range of 22% to 26%. Seagate shares were slammed over the summer on weaker-than-expected profits, amid industry-wide pricing pressure. In May,Barron's wrote favorably about Seagate and Western Digital(WDC) when they were trading at 18 and 38, respectively. Western Digital is now at 34. We argued the disk-drive industry has enjoyed structural improvement in recent years because Seagate, Western Digital and Hitachi (HIT), now control 80% of the market. This should improve pricing discipline. We also argued that disk drives are a growth industry, given booming data-storage demands. But Wall Street is worried about the threat from flash memory, which is used in Apple's iPad and other devices. Still, disk drives are a huge business, with about 660 million expected to be shipped this year, and global flash capacity is a tiny fraction of disk-drive capacity. Even a massive addition to current flash capacity would do little to dent the disk-drive market. In fact, disk-drive shipments should rise 16% this year and more than 10% in 2011, Kugele estimates. He argues that two billion disk drives may ship in 2020, as personal-computer use booms in the developing world and cloud computing rises globally. Private equity wanted to steal Seagate from its shareholders. Credit management and the board for saying no.