We recently wrote about Seagate (STX) so wanted to update you on this acquisition. Seagate is buying Xyratex (XRTX). Xyratex is a UK based data storage company and ostensibly this acquisition adds customers and improves Seagate’s supply chain.
Seagate is paying $374 million for the acquisition that translates to $13.25/share. Xyratex’s shares closed today at $13.31/share. The acquisition was announced on Dec 24th.
This acquisition does not change our recommendation to avoid the Seagate stock at the current prices. Xyratex acquisition, while done at a good valuation, is small enough to NOT change our view that a margin of safety on STX stock does not exist.
Another VSG Alumni gets Acquired
We owned XRTX in the VSG portfolio. It was originally purchased on Jun 30, 2011 and we sold the stock on Jan 19, 2012 at $16.10/share for a 30% profit. Since then, the stock price has meandered down and at $13.25/share Seagate is getting a very good deal. While Xyratex may be quite unknown to American investors, the company has its origins in IBM’s storage business and brings quite a pedigree and intellectual capital to the acquisition.
This acquisition marks the 7th company out of the 19 Value Stock Guide portfolio alum that have been either acquired, offered to acquire, merged, taken private or liquidated to the shareholders. We are all value investors in theory, but whether the stock we own is a great value is determined by the market and especially by other “knowledgeable acquirers” who know the industry very well and are able to do much deeper due diligence in the company than we can. I consider value release through M&A activity on 37% of our past holdings a very satisfactory run rate.