Seagate IPO: Second Time Around

Scotts Valley, Calif.-based Seagate Technology Holdings made a rousing return to Wall Street this week in an initial public offering that had analyst’s tongues wagging and shareholders chomping at the bit.

However, the disk drive maker, which claims significant market share in the enterprise, personal computer, and consumer electronics desktop arena and recently reported fiscal revenues in the billions, hit a markedly lower share price than the company had originally rallied for.

The IPO for 72.5 million shares had originally aimed at trading between $13 and $15 per share, but ended up being re-priced late Tuesday by underwriters Morgan Stanley and Salomon Smith Barney at $12 per share.

By Wednesday morning, Seagate shares took an even lower dive to $11.45 before climbing upwards to $11.63.

Because of the weak market, analysts were expecting Seagate to come in at an even lower share price of $10. However, Seagate’s IPO was still considered a strong indication that the disk drive business continues to experience steady growth.

According to reports, 24 million shares are to be sold by the company and 48.5 million shares are to be sold by Seagate’s parent as selling shareholder.

Seagate raised $870 million through the sale its 75.2 million shares, considerably less than its goal of $1 billion.

Seagate will trade under the ticker symbol “STX.”

Seagate’s return to Wall Street caused a deja vu for many investors who were familiar with the disk drive maker’s colorful past.

Over the past three years, Seagate has grown to become one of three dominant players in the disk drive industry, following the exit of Fujitsu and IBM from that area of the market.

Seagate’s primary rivals in the space are Lake Forest, Calif.-based Western Digital Corp. and Maxtor Corp. .

But despite the sluggish economy, business appears to be good for Seagate. The company posted first-quarter revenue of $1.6 billion, up from $1.3 billion from the year before, and a net income of $110 million, up from $34 million. Seagate also reported shipping 16.7 million disk drives for the same quarter.

Seagate operates out of its Scotts Valley offices, but is officially based in the Cayman Islands.

In 1998, Seagate was a publicly traded company with two separate divisions, one for disk drives and the other for data storage software.

In an effort to consolidate its interests, Seagate decided to sell off its software division to Veritas Software Corp. in a $1.6 billion stock transaction.

A year later when technology stocks were overvalued on Wall Street, Seagate ended up with a 33 percent stake in Veritas Software.

In order to cash in on the Veritas pie and over-ride a tax liability snafu that prevented Seagate from transferring that value to its own shareholders, Seagate was taken private in 2000 in a $1.5 billion buyout by a group of investors headed by Silver Lake Partners.

Seagate remained a private company for two years during which the company underwent some extreme consolidation measures, including the elimination of 40,000 jobs.

The disk drive maker’s return to the public markets is said to be the largest U.S. IPO of the year for the technology industry since Accenture’s IPO in July 2001.

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