Seagate Terminates Private Equity Discussions

Seagate [STX] recently announced during their latest earnings call that they would be exploring the possibilities of going private. This, of course, would lead to the artificial inflation of their stock price in anticipation of the privatization. Once indications of complications regarding TPG Capital and other partners involved began to surface, Seagate?s stock took a sharp dive. Since then, there has been a constant sense of uncertainty regarding Seagate and the possibility of the company ever going private again. As a result, the stock?s performance has been less than stellar? not that it was prior to the private equity announcement.

That leads us to today. Seagate has officially announced that they would be terminating private equity discussions and instead buying back $2B in shares. Currently, Seagate?s market cap is at $6.55B. This equates to a buyback of nearly 30%. This still indicates that while Seagate may not be going private right now, they are still thinking about doing so in the distant future and are positioning themselves now to make it easier in the future. This move would reduce the complications that Seagate encountered when trying to go private this year. While there is no definite time frame for the share repurchase program, it appears that Seagate plans to stretch it out over many months if not years.

In addition to this announcement, Seagate also provided their business outlook for fiscal 2Q 2011, calendar 4Q 2010. Seagate believes that demand for hard disk drives has improved and they anticipate revenue of $2.7B with a gross margin of 19.5%. This is because Seagate anticipates supply and demand to be well balanced [in their favor of course] and inventory to be below targeted levels, meaning more demand and higher prices. As their outlook appears to be favorable, this should continue to give Seagate some upward momentum on their stock price even though there doesn?t really appear to be much from Seagate that would indicate rapid growth.