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Bombshell in platterland: WD tried to buy Seagate

Unwise rebuff leaves tidy ship going glug glug glug?

Impasse

This is the statement made about funding the buyback: "Seagate expects to fund the share repurchase through a combination of cash on hand, future cash flow from operations and potential alternative sources of financing."

Conclusion: it doesn't have the money now and can't fund it entirely from operating earnings. So it could be considering increasing its debt to buy its own shares. Is that what "alternative sources of financing" means? Is that a reasonable thing to do?

Wherever the money comes from it has ultimately to be paid for from operating revenues, and that depends on Seagate prospering. How is it going to do that? There is no plan that anyone can see above and beyond what it has been doing, the carrying out of which has led to WD over-taking it. This current plan, considering the pursuit of a private equity buyout, was apparently thought to be insufficient by Seagate's executive management and board.

Seagate is a world-class company with world-class products and operations that has, it appears, lost its way, and finds itself at a bit of an impasse. Its statement about the termination of the private equity talks concluded with these sentences:

The December 2010 quarter outlook does not include the impact of any potential new restructuring activities, any charges related to the aforementioned terminated discussions, future mergers, acquisitions, financing, dispositions or other business combinations the company may undertake. The company’s policy is to refrain from commenting on any such activities.

Mergers and acquisitions? Is Seagate thinking of merging with or buying WD? Could it look to buy SDD development assets? Does it have people looking at cloud storage and cloud storage access businesses?

Dispositions? What can Seagate dispose of? EVault? That wouldn't make sense as it is a future growth business and is doing well.

These cautionary sentences are a hint surely that Seagate's CEO and board are still thinking about what to do above and beyond making more disk and solid state drives at lower cost, and more finely targeted to market needs, than its competition. Do they have what it takes to achieve that? ®

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