KKR & Co. may drop out of a group of investors in talks to buy Seagate Technology Plc, the world’s largest maker of disk drives, according to two people with knowledge of the matter. Seagate shares dropped 8.4 percent.
TPG Capital, which is leading buyout talks, will look for new partners and plans to talk to other private-equity firms as well as pension and sovereign wealth funds, said one of the people, who declined to be identified because the matter is private. Bain Capital LLC is still interested in the buyout, the person said.
A collapse of the deal would mark the second failed buyout attempt for the company this year. TPG restarted takeover discussions with Seagate after an earlier proposal with Silver Lake broke down, the people said. The disk-drive maker may be a difficult candidate for a leveraged buyout because of its high capital costs, said Rajesh Ghai, an analyst at ThinkEquity LLC. The industry also is suffering because more storage is shifting to flash memory, rather than disk drives, he said.
“The outlook for the business is pretty bleak right now,” Ghai said. The San Francisco-based analyst rates the shares “hold” and doesn’t own them. “The PC market has been in a slump and a lot of it is being cannibalized by tablets, which do not have hard drives.”
KKR and TPG have been considering an offer of about $16 a share for Seagate, people familiar with the matter said earlier this month.
Seagate dropped $1.28 to $13.94 at 4 p.m. New York time in Nasdaq Stock Market trading, giving the company a market value of $6.6 billion.
Brian Ziel, a spokesman for Scotts Valley, California-based Seagate, didn’t immediately respond to requests for comment.
The company said Oct. 14 that it was in talks to be taken private, without identifying the parties involved. A deal would be Seagate’s second leveraged buyout in a decade.
The company’s revenue is under pressure amid competition from rivals such as Western Digital Corp. On Oct. 20, Seagate posted quarterly profit and sales that missed analysts’ estimates. Excluding some items, profit was 37 cents, compared with the 46-cent average of estimates compiled by Bloomberg. Sales rose 1.3 percent to $2.7 billion.
TPG, along with Blackstone Group LP and Thomas H. Lee Partners LP, also pursued an 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.