Seagate (STX) Acquires LaCie for $186 Million to Increase its Consumer Market Offerings
This week, Seagate Technology (STX: Charts, News), one of the largest hard-drive manufacturers in the world, announced that its intention to acquire hardware company LaCie for $186 million. This horizontal acquisition would boost Seagate's product catalog with LaCie's external hard drives, RAID arrays, optical drives, flash drives and computer monitors.
The acquisition is intended to increase Seagate's presence in the consumer storage market, and complements its December 2011 purchase of Samsung's hard drive business. Daily Chart
The floods in Thailand last year hindered many of Seagate's rivals, crippling the hard drive supply chain and impacting the profits of several large PC manufacturers. Seagate's manufacturing plants in Thailand were not damaged on account of being on higher ground than its rivals. These floods decimated the manufacturing plants of its primary rival, Western Digital (WDC
). As supply remains tight, analysts believe that Seagate, which survived unscathed, will have increased pricing power throughout 2012. In the second quarter of 2012, Seagate announced that the impact of the floods would cause supply to trail demand by approximately 150 million units throughout the year. By the third quarter, Seagate bounced back strongly, reporting earnings of $2.48 per share on revenue of $4.4 billion. Analysts had expected the company to earn $2.11 per share on revenue of $4.4 billion. Seagate's purchase of LaCie, which is based in Basel, Switzerland, will give Seagate a competitive advantage in higher end, premium products. Seagate will also gain LaCie's heavier exposure to Japan and Southern Europe. Seagate marketing vice president Scott Horn commented, "The acquisition brings us talent, brings us product and brings us a stronger geographic footprint." Seagate will retain the LaCie brand, which the company noted is "complementary" to its own product lines. Seagate will gain between 200 to 300 of LaCie's employees, which it plans to retain. LaCie CEO Philippe Spruch will join Seagate as head of its consumer storage products segment. The $186 million deal will translate to 4.05 euros per share in cash - a 29% premium over the company's previous closing price. Seagate will control 64.5% of LaCie's outstanding shares right away, with the rest being purchase in incremental cash purchases. The deal is expected to close in the third quarter, and will not be earnings accretive to Seagate's fiscal 2013 earnings. LaCie generates between $300 million to $350 million in annual revenue. Looking forward, Seagate is well positioned to reap the benefits of increasing computer sales for both companies and everyday consumers. However, investors should pay attention to developments in cloud-based computing, which has replaced the need for bulky internal and external drives with Internet-based storage folders. Many lower-end tablets, netbooks and smartphones are now shipping with less on-board memory in favor of cloud-based storage solutions, such as Google (GOOG
) Drive, Microsoft's (MSFT
) Skydrive or Dropbox. Analysts expect this trend to continue in the long-term, which could potentially disrupt Seagate's core competencies. Shares of Seagate are up approximately 56% year-to-date, outpacing all of its primary rivals and the broader market. Despite rallying through most of the year, shares are still considered undervalued, trading with a forward P/E of 2.7. Its 5-year PEG ratio of 0.1 also suggests strong growth on the horizon. The stock also pays a quarterly dividend of 25 cents per share. Investors should be aware that the stock's 50-day moving average dipped below its 100-day and 200-day averages, a possible bear flag which could cause the stock to lag the market in the near term. Other News About STX SeagateToBuyStorageProductsMakerLaCieForAtLeast $186M
Seagate extends its reach to Japan and Southern Europe with its LaCie acquisition. IHSiSupplipredicts 60TBdiskdrivestobearealityin 2016
Will Seagate's drives reach a capacity of 60TB in a mere 4 years? Other Stocks in the News FacebookIPOplungesparkstidalwaveoflawsuits
Facebook's IPO debacle continues. DellgetsafrightfulhaircutinQ1
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Published on May 24, 2012
By Leo Sun