Buyback Favored at Seagate Over Buyout; Not All Bad News (STX, WDC)

When it comes to deep-value technology stocks, two companies which consistently arise in screens are Seagate Technologies PLC (NASDAQ: STX) and Western Digital Corp. (NYSE: WDC).  Seagate had lifted the two on hopes that its negotiations with private equity firms would result in an acquisition.  That looks dead, so the company will do a mini-takeover of itself via a large share buyback plan.

Seagate’s board of directors terminated discussions with private equity firms because they were “not in the best interest of its shareholders.”

The company noted strong debt markets, improving business conditions and other financing options, so it plans to optimize its capital structure to maximize shareholder returns.  The first step is a giant buyback of up to $2 billion in common stock.

Seagate’s message is that the demand for hard disk drives has improved, and analysts expect the total available market in the December 2010 quarter to be about 170 million units. It further noted that supply and demand seem to be well balanced and revenue should be at least $2.7 billion and gross margin as a percent of revenue to be at least 19.5%.  Thomson Reuters has consensus estimates of $2.7 billion in revenue for the quarter.

Seagate shares halted on the news announcement and the stock closed down 0.2% at $13.86 in a low-volume trading day of only about 7 million shares.  Its 52-week trading range is $9.84 to $21.58.  Shares popped from under $13 to above $15 on its announcement of private equity discussions last month, and a lack of conviction and a gradual selling of shares had led many to believe that today’s announcement was likely.  The company ended its latest quarter with more than $2.1 billion in cash and short-term investments.

Seagate had driven shares of Western Digital higher as well.  Western Digital closed down 0.1% at $33.72, and shares are only down 1.25% at $33.30 in the after-hours indications.

JON C. OGG