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An Lbo At Seagate

BusinessWeek Investor -- Inside Wall Street

An LBO at Seagate

The recent high-tech rout has been horrific--for companies ranging from Internet startups to old-line component makers. Among those dragged down is disk-drive manufacturer Seagate Technology (SEG). Rick Mastain of Delta Capital Management thinks Seagate has fallen so far it can be considered a value stock--Delta's specialty. "Everybody's so fixated on technology these days, but this is an interesting way for a value investor to participate," says Mastain.

Seagate rode the technology boom and is up 78% in the past year. But it was hard hit when tech stocks crumbled. The stock, which traded at 49 7/8 on Apr. 19, is well below its 52-week high of 76, which it reached on Mar. 13. One reason for Seagate's weakness is investor uneasiness about a planned leveraged buyout by a management-led group. The $2 billion deal would pay investors in cash and stock of Veritas Software, in which Seagate has a 33% stake. The company was mentioned in this column as a takeover candidate on Nov. 22.

Seagate managers defend the buyout, saying the terms are fair. Mastain agrees. He believes that the deal will go through--and will be "in the $60 range," bringing a 25% to 30% return for investors who buy now. "This is an undervalued technology play, and the leveraged buyout means your exit strategy is already determined," says Mastain, whose firm has been buying. The deal is scheduled before yearend, but Mastain believes it will take place in the next four to five months.Gene Marcial is on vacation and will return next week.By Gary WeissReturn to top

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