October 15, 2010 / 1:52 AM / 9 years ago

Seagate in buyout talks, TPG involved: sources

LOS ANGELES/NEW YORK (Reuters) - Hard drive maker Seagate Technology Plc said on Thursday it is in talks to be taken private by an undisclosed buyer, and two sources familiar with the matter said those talks involve buyout firm TPG Capital.

If a deal is clinched, it would be one of the biggest leveraged buyouts of the year. The firm had a market capitalization of over $6 billion, based on its share price at the close of trading on Thursday.

TPG Capital and rival private equity firm Silver Lake previously held early-stage discussions about buying the hard-drive manufacturer, a source familiar with the matter told Reuters in September. The talks were early-stage and faltered, that source said at the time.

Silver Lake, however, is not involved anymore, a source familiar with the situation said on Thursday. It was unclear whether TPG is now working with another party, or seeking another party to team up with.

Other private equity firms could also be interested in Seagate such as Bain Capital, a source familiar with the situation said. Bain has been involved in other large technology deals such as chipmaker NXP Semiconductors and Sungard Data Systems.

Silver Lake, TPG and Bain Capital declined comment.

Scotts Valley, California-based Seagate said in a statement that it received a preliminary indication of interest regarding a go-private deal and is in discussions with that party. But Seagate did not identify it.

Seagate said there was no assurance the firm will receive a formal offer or that a deal will take place.

Seagate’s board is evaluating the interest, and other alternatives, the company said, and has retained Morgan Stanley & Co Inc and Perella Weinberg Partners as advisers.

Seagate’s statement was the first time it confirmed it has held talks about possibly going private.

Seagate shares rose 20 percent in after-hours trading.

The statement also pushed up shares of Seagate’s arch rival Western Digital Corp, which rose 8.9 percent.

SECTOR SLOWDOWN

TPG and Silver Lake have a history with Seagate.

In 2000, Seagate Technology Inc was bought in a complicated $20 billion deal with Veritas Software Inc that took the world’s No. 1 computer disk-drive maker private and then sold part of it to an investor group led by Silver Lake Partners and including Seagate management and TPG.

That business was taken public again in December 2002.

Kaushik Roy, an analyst with Wedbush Securities, said a private equity firm could be interested in Seagate to wait out the downturn in hard-drive demand.

“The weakness in the stock is in end-demand and market related, it’s not that the company is mis-executing. So private equity is looking at it and saying, geez, these are cheap stocks,” Roy said.

The hard-drive sector has suffered from slowing PC demand, with the rising popularity of tablets such as Apple Inc’s iPad, which does not use a hard-drive.

In recent years, next generation solid state drives (SSDs), which do not have moving parts and are faster and more rugged than hard drives, have been seen as a serious challenge to the hard drive industry.

But many analysts contend pessimism about the hard-drive sector is overblown, and that companies such as Seagate and Western Digital can survive the challenge from SSDs and develop their own flash storage solutions.

Seagate is scheduled to report its results for the third quarter of the calendar year on Wednesday.

Seagate shares had been trading at or below six times its price to earnings ratio, compared with 10 to 14 times for other technology stocks, Roy said.

Seagate, the top hard-drive manufacturer by revenue, reentered the public market in 2002.

Trading in Seagate shares was temporarily halted following the announcement, but after it resumed, the company’s shares spiked to $15.24 in after-hours trading. The shares of rival Western Digital Corp were up 8.9 percent at $32.11 in after-hours trading.

Reporting by Megan Davies in New York and Alex Dobuzinskis in San Francisco; Editing by Gary Hill

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