If Seagate Won't Sell, Why Not Buy Western Digital? (STX, WDC, KOMG)

Seagate Tech (NYSE:STX) has been a great performer today after it raised guidance.  But it also noted strongly that it wasn’t for sale.  This is in the 48 hours after rumors and hopes from some that Chinese companies might want to acquire Seagate.  As the leader in hard drives and with a near-$14 Billion market cap (and still 10% under yearly highs), that would be a stretch anyway.

But this leaves an obvious choice: the second company in the batch, Western Digital (NYSE:WDC).  Western Digital is a stock that has been a member of our BAIT SHOP, meaning it could be takeover bait, for quite some time.  Its shares rose 7% to $23.00 today, and Seagate shares rose almost 4% to $25.39.  The fact that Western Digital is acquiring Komag (NASDAQ:KOMG) should not hurt our stance that it would be a great company to acquire.  In fact it might even be better even if it is not as cheap as it used to be.

Western Digital (NYSE:WDC) would make a fine takeover target.  It isn’t as technologically advanced and doesn’t have the depth and breadth that Seagate (STX) has.  It would also be a far easier deal to absorb.  Western Digital has a $5.1 Billion market cap and the soon to be added Komag (KOMG) has right under a $1 Billion market cap. 

We first published a free version of Western Digital (NYSE:WDC) being a Bait Shop stock last November showing this one as a real buy (First added at $18.20 in September).  We frequently make some of the updates available for free after subscribers of the Special Situation Investing Newsletter have had their chance to review and make their decisions.    We even gave an update on this earlier in the year  when we got a bit cautious on technology stocks as a chance to lighten up and then to get back in cheaper.

Flash drives are not going to kill hard drive stocks.  We outlined before how hard drive makers are merely going to make or partner to make flash drives on their own.  Western Digital won’t give the business away.

We’ve been positive on Western Digital (NYSE:WDC) for some time, and there seems no reason to change.  If the Chinese or others want to buy a disk drive comapny, Western Digital is the one they should buy.  This probably wouldn’t face any of the regulatory scrutiny that Seagatemay have faced.  The IBM PC-unit to Lenovo got done and that was a fargreater risk to national security.  No one seems to care that thehelpless gateway is becoming part of Acer.

Jon C. Ogg
August 29, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.