Seagate Gulps Majority of LaCie - Analyst Blog
May 25 2012 - 5:30AM
Zacks
Seagate Technology
(STX) announced that it will acquire a majority stake of its rival
LaCie S.A., for $186.0 million. France-based LaCie is a well known
consumer storage device maker. The deal is expected to be wrapped
up by September 2012, after securing regulatory approval regarding
anti-trust and foreign investment requirements.
Seagate will initially purchase the
entire holding of LaCie’s chairman and CEO, Philippe Spruch, and
his affiliate. The transfer of holdings will give Seagate roughly
64.5%, or the controlling stake in LaCie. Post completion, Seagate
will make an offer for the remaining shares. Spruch will be joining
Seagate’s board and will head the company’s newly-acquired
unit.
LaCie’s product lines include
external hard drives, RAID arrays, optical drives, Flash Drives,
and computer monitors. However, the company is recognized for hard
drives of different capacities and specifications. LaCie’s drives
are mostly used in Apple Inc.’s (AAPL) MacBook.
Also, LaCie’s retail exposure and strong distribution capabilities
are worth mentioning.
Considering this, there remains no
doubt that this acquisition is a big win for Seagate. With LaCie’s
widely-accepted product lines, Seagate will find it easy to better
penetrate the consumer storage market, specifically in Europe and
Japan. Additionally, it will also be in a position to gain from the
growth of Apple’s MacBook.
The deal showed that the
consolidation in the storage market is an ongoing trend.
Specifically, the hard drive industry is getting smaller. In March
2011, Western Digital Corp. (WDC) took over
Hitachi Ltd.’s Global Storage Technology unit for a hefty $4.8
billion. Seagate, too followed the same path and acquired Samsung’s
HDD business for a sum of $1.4 billion, in April 2011.
The disk drive market is highly
competitive, and has experienced drastic pricing pressure due to
supply/demand volatility. Moreover, hard disk companies might be
vulnerable to additional pressures as customers such as tablet PC
makers choose flash cards for storage purposes instead of the
customary hard disks. The situation may compel companies to cut
hard disk prices, which will hurt margins. In such a situation,
companies can go in for acquisitions to further consolidate the
market and alleviate competition.
Seagate for its part should regain
its strength with LaCie and Samsung HDD. Though the HDD vendor
expects neutral effect on earnings that contribution from LaCie
will not be accretive to its earnings until June 2013, the acquired
capabilities will unfold new potential in the long term.
Currently, Seagate has a Zacks #2
Rank implying a short-term Buy recommendation.
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