Seagate Technology Plc, the disk- drive maker that ended takeover talks with TPG Capital, also turned down a proposal from competitor Western Digital Corp., according to two people with knowledge of the matter.
A combination with Western Digital would have faced antitrust obstacles and may have resulted in management departures, said the people, who declined to be identified because the talks were private. Western Digital indicated to Seagate it was willing to pay 10 percent to 50 percent more than TPG, one person said. TPG had considered offering more than $7.5 billion, people familiar with the discussions said in October.
The proposal was a bad idea, said Ashok Kumar, an analyst at Rodman & Renshaw LLC in New York. “I’m not sure how that would serve Seagate’s shareholders,” he said. “There’s way too much product overlap, and I’m not sure the premium would be meaningful enough to make it worth it. I think they have to make a go of it on their own.”
Seagate, which has a market value of about $6.9 billion, said Nov. 29 it ended discussions with private-equity firms because the indicated deal value wasn’t in the best interest of the company or its shareholders. TPG couldn’t find enough equity partners to finance a takeover after KKR & Co. and Bain Capital LLC lost interest in a transaction, one person familiar with the situation said at the time.
Made Its Move
Western Digital made its approach after Seagate said Oct. 14 that it received interest about a going-private transaction, one person said.
While Western Digital has smaller sales than Seagate, its market value is larger, at about $8 billion. The Lake Forest, California-based company had cash and equivalents of about $2.9 billion and $375 million in debt as of Oct. 1.
Seagate rose as much as $1, or 7.2 percent, to $14.92 in Nasdaq Stock Market trading after the Western Digital approach was reported. The shares closed at $14.53, up 4.4 percent for the day.
Competition with Western Digital has made it harder for Seagate to meet analysts’ profit projections. Excluding some costs, earnings were 37 cents last quarter, compared with the 46-cent average of estimates compiled by Bloomberg. Sales rose 1.3 percent to $2.7 billion.
The industry may focus more on avoiding supply gluts than acquisitions to improve results, Kumar said.
“The consolidation wave has run its course,” he said. “The only thing that will keep pricing stable and profits moving in the right direction is more rational production levels.”