by Lyle Smith

Seagate Technology Aquires Xyratex

Seagate Technology and Xyratex have announced that they have entered into a definitive agreement under which Seagate will acquire all outstanding shares of Xyratex. The transaction will be in all-cash and valued at $13.25 per share, or a total of roughly $374 million, including $80 million in cash on Xyratex’s balance sheet as of August 31, 2013. The consideration represents a premium of approximately 27% per share over Xyratex’s stock price at the close of trading on December 20th, 2013. Xyratex has developed a leading HDD capital test equipment business. 

This strategically important acquisition will further strengthen Seagate’s vertically integrated supply and manufacturing chain for disk drives as well as ensuring uninterrupted access to important capital equipment. Additionally, the acquisition will expand Seagate’s storage solutions portfolio by adding Xyratex’s industry-leading enterprise data storage systems and high-performance computing business. Seagate has stated that it will operate this business as a standalone entity and will focus on opportunities to improve and expand it.

Xyratex’s Board of Directors has approved of the transaction and is subject to customary closing conditions, which includes a review by regulatory bodies and approval by Xyratex shareholders. Baker Street Capital, Xyratex’s largest shareholder, has agreed to vote its shares in favor of the transaction. The transaction is expected to close sometime during mid-2014 and Seagate expects to finance the transaction from existing cash balances. The transaction is not subject to any financing conditions.

It is expected that the transaction will be neutral to Seagate’s earnings per share in its fiscal year 2015. Seagate also expects an immediate positive cash flow following the transaction as well as a revenue contribution between $500-$600 million during its fiscal year in 2015.

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