Seagate Up on Deal Talks; Cubist Slides

Shares of Seagate Technology starred in extended trading on Thursday on news it's in go-private talks, but Cubist's stock fell after a mixed third-quarter report.
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Updated from Thursday with additional information

NEW YORK (

TheStreet

) -- Shares of

Seagate Technology

(STX) - Get Report

starred in after-hours action on Thursday after the hard drive maker acknowledged it's engaged in talks about going private.

The company said it received a preliminary indication of interest from an undisclosed party about a potential deal and that it's now opened up discussions. Seagate has hired

Morgan Stanley

(MS) - Get Report

and

Perella Weinberg Partners

to advise it during the process and its board will evaluate any proposal resulting from the talks as well as other strategic alternatives.

Bloomberg

reports Friday that TPG Capital and KKR are in talks to acquire Seagate Technology. The private-equity firms are considering an offer of about $16 a share, which would value the company at $7.55 billion.

Bloomberg

cited two people with knowledge of the matter.

TPG and KKR are looking to contribute about $4 billion in equity and may seek other buyout funds as partners. Bain Capital also is interested in the deal, according to one person familiar with the firm,

Bloomberg

says.

Shares of Seagate were halted shortly after the close Thursday as the news was disseminated. It was last quoted at $15.40, up 21%, in extended trading on volume of more than 4.7 million, according to

Nasdaq.com

. Based on Thursday's regular session finish at $12.69, the shares were down roughly 30% so far in 2010, but they had rebounded admirably since scraping a 52-week low of $9.84 on Aug. 27.

The appeal of Seagate for any potential acquirer rests on its leader status in both the overall hard drive and enterprise storage markets with shares of more than 30% and close to 60% respectively, according to ThinkEquity LLC, which coincidentally initiated coverage of the stock with a hold rating and $14 price target on Thursday.

Another big allure is likely the company's healthy free cash flow. ThinkEquity estimates Seagate generated $1.37 billion in cash on revenues of $11.4 billion in fiscal 2010 ended on July 2, and it's expecting the company to generate another $1.15 billion in free cash flow in fiscal 2011, despite margin compression and nominal revenue growth.

"Considering the strong FCF

free cash flow model, we are not surprised that Seagate has attracted private interest recently," the firm said in its note, referring to

media reports

in late September that discussions with buyout firms

TPG Capital

and

Silver Lake

had fallen through.

Seagate's news lifted the other publicly traded drive makers with

Western Digital

(WDC) - Get Report

tacking on more than 9% to $32.18 on volume of around 750,000, and

Quantum

(QTM) - Get Report

adding 4.8% to $2.84 with almost 45,000 shares changing hands.

Seagate is set to report its fiscal 2011 first-quarter results on Oct. 20 with Wall Street expecting a profit of 45 cents a share in the September quarter on revenue of $2.72 billion.

The big after-hours movers on earnings news were

Google

(GOOG) - Get Report

and

Advanced Micro Devices

(AMD) - Get Report

, which rose 9% and 5% respectively after each topped Wall Street's earnings expectations.

Cubist Pharmaceuticals

(CBST)

, however, was lower, trading down 3% to $24.25 on volume of more than 40,000, after releasing mixed third-quarter results.

The Lexington, Mass.-based biotech posted a profit of $31.2 million, or 50 cents a share, well head of the average analysts' view of 41 cents a share, but sales of $162.1 million were below the consensus of $166.4 million and represented a sequential decline from the company's second-quarter total of $168.5 million.

Cubist also tightened its revenue outlook for the full year, forecasting a range of $645 million to $650 million compared to its prior projection for revenue of between $627 million and $652 million, which it provided in April.

--

Written by Michael Baron in New York.

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Michael Baron

.

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