STOCKWATCH: Seagate, year's biggest IPO, discounted
STOCKWATCH: Seagate, year's biggest IPO, discounted
Investor uncertainty in the tech sector forced hard drive maker Seagate Technology to discount its asking price in the year's biggest high-tech initial public offering (IPO).
For its debut back on the New York Stock Exchange on Wednesday morning, underwriters priced Seagate at US$12 a share late Tuesday, down from the $US13 to $US15 range sought by Seagate and a group of investors that bought the company in a leveraged buyout two years ago.
The offering, managed by an underwriting syndicate led by Morgan Stanley & Co. and Salomon Smith Barney, priced 72.5 million shares giving the deal a value of US$870 million.
The performance of this IPO is being closely watched by investors and competitors, since tech IPOs, which boomed during the late 1990s and early 2000, have been scarce lately. Technology IPOs have only raised US$265 million all year - a fraction of the US$10 billion generated in 2001 or the US$30 billion from 2000. However, market watchers investment in the beleaguered disk-drive industry would indicate that technology in general has seen its worst.
By midmorning, Seagate shares, trading under the ticker symbol STX, were down 55 cents at US$11.45 and ranked as the most-active share on the Big Board in its first day of trading as a public company.
Seagate has an interesting history. In 1998, Seagate was a publicly traded and had two businesses: hard disk drives and data-storage software. Wanting to concentrate on the drives, it eventually agreed to sell the software unit to Veritas Software for a third of Veritas stock.
However, this quickly became a valuable stake, overtaking the value of Seagate's business during the stock-market bubble. Yet, management couldn't distribute the Veritas stock to its shareholders without triggering a large tax liability. So Seagate, in a series of transactions led by a group of investors including J.P. Morgan, Goldman Sachs and Texas Pacific Group, went private in part to help unlock the value of this stake Veritas.
While most other big tech companies have plunged in value during the past two years, Seagate has increased in value. The company's market value stood at $US5.1 billion after Tuesday's IPO price.
In its prospectus, Seagate says it's gained new momentum in profits after a few rough years in the late '90s. Since 1998, it's embarked on a tough restructuring campaign, closing 14 facilities and halving its staff with a punishing layoff of 40,000 employees. In addition, Seagate has undertaken a makeover and the dynamics for its industry have improved in the wake of major consolidation. Three years ago, there were five players jostling for space in the disk drive business, leading to aggressive pricing that socked profits. Since then, two companies have dropped out, with Fujitsu exiting the business and IBM selling its interests to Hitachi.
Meanwhile, rival disk-drive maker Maxtor raised its fourth-quarter sales outlook to $1 billion, up 4 per cent from projections, citing strength in recent new products, but also said it would cut 500 jobs from its U.S. work force. Maxtor said the improvement in its quarter was due to its new 60/80 gigabyte per platter products, as well as strong demand for hard drives used in desktop personal computers and computer servers and what it said was "a favorable pricing environment."
Shares of competitor Western Digital have also followed the Nasdaq and surged since mid-October, almost doubling since late September before falling last week.
On Monday shares of Maxtor fell 6 cents to $4.61 on the New York Stock Exchange while Western Digital shares fell 77 cents to $6.62, also on the New York Stock Exchange.
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