TPG Said to Be in Talks to Buy Seagate for $7.5 Billion With KKR

TPG Capital and KKR & Co. are in talks to acquire Seagate Technology Plc, a deal that would mark the disk-drive maker’s second leveraged buyout in a decade, according to people with direct knowledge of the discussions.

The private-equity firms are considering an offer of about $16 a share, which would value the company at $7.55 billion, said two of the people, who declined to be identified because the discussions are private. The firms are looking to contribute about $4 billion in equity and may seek other buyout funds as partners, the people said. Bain Capital LLC also is interested in the deal, according to one person familiar with the firm.

Seagate said yesterday it was in talks to be taken private, without identifying the parties involved. TPG rekindled discussions with Seagate after an earlier proposal with Silver Lake broke down, the people said. TPG persisted in trying to keep the deal alive, entreating other firms to get involved, according to the people.

“Seagate’s buyout is shaking up the tech industry and we’ll see more M&As as the boom in smartphones and tablet PCs causes a paradigm shift,” said Seiichiro Iwamoto, who helps oversee $35 billion in Tokyo at Mizuho Asset Management Co. “Companies that only make PC-related products are increasingly concerned about their profits in the future and need to look to smartphones and network technologies.”

Shares Rise

Seagate, the world’s largest maker of disk drives used in computers and other electronics, surged 19 percent to $15.16 at 12:04 p.m. on the Nasdaq Stock Market. The shares had dropped 30 percent this year before today. A $16-a-share bid would be 26 percent higher than yesterday’s closing price.

Western Digital Corp., the second-biggest disk-drive company, also rose, gaining 8 percent to $31.89 in New York Stock Exchange trading on speculation it too may become a takeover target.

Morgan Stanley and Perella Weinberg Partners LP will serve as financial advisers and Wilson Sonsini Goodrich & Rosati and Arthur Cox are the legal counsel in the discussions, Seagate said yesterday in a statement. Brian Ziel, a spokesman for the company, declined to comment further.

Demand for storage has helped fuel a rebound in Seagate’s sales and profit in the past year, following a decline during the recession. The Scotts Valley, California-based company, whose competitors include Japan’s Hitachi Ltd. and Toshiba Corp., had a market value of about $6 billion, based on yesterday’s closing stock price.

Striving to Be Seagate

“They’re doing more of the right things than Western Digital or Hitachi,” said David Rubenstein, a Tokyo-based analyst at MF Global Ltd. “Those are all striving to be like Seagate.”

Seagate reported net income of $379 million in the second quarter, compared with a loss of $83 million a year earlier, as sales rose 13 percent to $2.66 billion.

Silver Lake isn’t involved in the current proposal, the people said. Its earlier talks with TPG unraveled after Seagate failed to meet financial targets that underpinned the proposed $7 billion transaction, one person familiar with the matter said. Morgan Stanley, Deutsche Bank AG and Bank of America Corp. were advising and offered lending on the deal, the people said.

TPG, located in Fort Worth, Texas, and Silver Lake, based in New York and Menlo Park, California, owned Seagate before the company’s initial public offering. They bought Seagate in 2000 and took it public in 2002 for $12 a share.

Buyout Drought

KKR, a private-equity firm founded by buyout pioneers Henry Kravis and George Roberts in 1976, is located in New York. The company listed shares on the New York Stock Exchange this year.

Buyout firms have struggled to restart dealmaking after the global financial crisis froze credit markets in mid-2007, ending the biggest LBO boom in history. The firms pool money from investors to take over companies, financing the purchases mostly with debt, and intend to sell them later for a profit.

TPG, along with Blackstone Group LP and Thomas H. Lee Partners LP, pursued an ultimately unsuccessful takeover of Fidelity National Information Services Inc. in May. The private- equity groups offered more than $15 billion for the company, people with knowledge of the deal said at the time.

Seagate’s disclosure comes amid discussions by buyout firms to take over Yahoo! Inc., fueling speculation the drought of deals may be ending. AOL Inc. has talked with private-equity funds including Silver Lake about a possible bid, according to two people familiar with the matter.

“The LBO market may be coming back: Sentiment is there, returns have been good and the people who are looking for assets are those top-tier funds sitting on cash,” said Kathleen Ng, managing director at the Centre for Asia Private Equity Research Ltd. in Hong Kong.

To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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