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Seagate IPO more notable for selling
From: Dave Farber <dave () farber net>
Date: Thu, 21 Nov 2002 05:21:49 -0500
------------------------------------------------------------------------Post ed on Wed, Nov. 20, 2002 Scott Herhold: Seagate IPO more notable for selling By Scott Herhold Mercury News One of my relatives, long since departed from this world, loathed the idea of paying tolls when he traveled. Enraged at a nickel toll at a bridge, he once flung down a coin and profanely challenged the toll taker to find it. He would probably have detested the coming initial public offering of Seagate Technology Holdings (STX). Not because the company is bad: It isn't. And not because its leadership lacks creativity: It has plenty. No, he would have objected to the toll. In this case, it's the quick profit for Seagate's investors, a group of venture capitalists and private shareholders selling IPO stock. The rebirth of the disk-drive company on the public market is really two stories intertwined: One is a tale of restructuring, of shedding jobs and seizing market share. The second is a tale of successful financial engineering. It was only two years ago that a group of investors led by Silver Lake Partners, Texas Pacific Group and August Capital invested $875 million and borrowed an additional $800 million to acquire the disk-drive and storage-area business of Seagate, the venerable Scotts Valley company once headed by Al Shugart. That going-private transaction was part of a complex deal to return some 128 million shares of Veritas' stock to Seagate shareholders -- stock that Seagate had amassed by selling its software business to the hot young Veritas. At least some investors considered the deal for the disk-drive business an afterthought. Disk drives? An old business facing cutthroat competition that drives down prices 20 percent a year. The newly private Seagate, however, had two distinct advantages: One was a superb chief executive in Steve Luczo, a former investment banker. The second was a group of canny investors led by David Roux and Roger McNamee of Silver Lake and David Marquardt of August Capital. Over the past two years, Luczo has flung himself into restructuring the company, cutting 40,000 jobs and pouring money into research and development. The company's share of the disk-drive market is 29.2 percent, up from 23.5 percent in 2001. Luczo was able to do that partly because Seagate was private. His investors were a clubby group. And he could make tough decisions without worrying about shareholder lawsuits or market whims. Now those investors want a down payment on their investment. The company's prospectus says they intend to sell 48.5 million shares in the offering, part of their roughly 400 million shares. The company itself intends to sell 24 million shares. The math tells the story behind this bonanza. The investors and managers were able to buy their Seagate stock at a price estimated at $1.96 a share -- and they're selling for an expected $14 two years later. Not a bad return in a massive tech recession. What they're making in the IPO -- plus the $261 million in cash distribution they're expected to receive shortly before the offering -- will nearly cover their investment. Now I'm enough of a capitalist to cheer Seagate's IPO. It's one of the few success stories in tech this year. And it's fair to point out that this was no slam-dunk. The investors and managers took a risk. Given that the Seagate IPO was repeatedly delayed, maybe they deserve a payday. But public shareholders shouldn't forget one simple fact. The smart money is selling in this IPO, not buying. FYI An intriguing twist to the Seagate offering is reflected in the chart of Western Digital (WDC), a Southern California disk-drive maker that is a smaller competitor to Seagate. Over the past two months, WDC has soared 104 percent, from $3.85 to $7.84. One line of speculation among savvy traders is that WDC has become a tracking stock for Seagate. The buzz is that buyers close to Seagate's investors are bidding up WDC as a way of making the Seagate offering more attractive. Unfortunately, this can't be confirmed -- though it's worth pointing out that it doesn't take much volume to drive the much-smaller WDC stock, which trades an average of 1.8 million shares a day. ``I wouldn't totally refute that,'' said Bob Blair, Western Digital's vice president of investor relations. ``But I'd point to the fact that our financial performance has been extraordinary.'' ------------------------------------- You are subscribed as interesting-people () lists elistx com To unsubscribe or update your address, click http://v2.listbox.com/member/?listname=ip Archives at: http://www.interesting-people.org/archives/interesting-people/
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- Seagate IPO more notable for selling Dave Farber (Nov 21)