Will Seagate's privatization start a trend?
The company's decision to become a privately held entity defies the crush of initial public offerings in recent years and could lead other companies to reconsider their public status.
Seagate, a company that helped create the disk drive business and a symbol of Silicon Valley for 21 years, announced yesterday that it will be bought by Veritas Software and an investment group in a complex, $20 billion deal that will put Seagate back in private hands.
Meanwhile, a company on another coast and in a very different business also said yesterday that it is contemplating a similar move.
Ben & Jerry's Homemade said it is in talks with Unilever and Meadowbrook Lane Capital for a transaction that could take America's second-largest premium ice cream maker private. The purveyor of Chubby Hubby and Chunky Monkey ice cream wouldn't give the value of the buyout bid--its second offer since December--but reports have valued the company at $260 million.
"Certainly, companies have their own good reasons for going private," said Ronald A. Norelli, CEO and founder of Norelli & Co., a Charlotte, N.C.-based management consulting firm specializing in business strategy. Norelli is also chairman of CEM of Matthews, N.C., a public company that is also in the process of going private; CEM develops microwave-based instruments for laboratory testing.
Norelli wouldn't comment on why CEM chief executive Michael Collins agreed to buy all of the firm's outstanding shares in December. But Norelli said companies often consider going private to focus on product development without worrying that competitors have access to financial information.
"If there were some kind of new business initiatives that could be better pursued without requirements of full disclosure, that could be a reason to go private," Norelli said. "Or the particular company felt the market was not properly valuing the company, and it would be better for shareholders to get a fair value for the company now."
Yet Seagate's reasons for going private differ starkly from those of Ben & Jerry's.
Seagate CEO Steve Luczo said yesterday that the stock market's tendency to undervalue the company was the prime motivation for the transaction.
Silver Lake Partners, the acquiring investment group that includes venture capitalists Kleiner Perkins Caufield & Byers, Jim Davidson and Roger McNamee, said private ownership would allow Seagate to pursue strategic plans aggressively without divulging sensitive business strategies to the public.
Information technology adviser John Webster of Nashua, N.H.-based Illuminata said the disk drive business doesn't afford companies the luxury of secrecy. When the investor spotlight shines on a company such as Seagate, he said, it can be difficult to create, let alone complete, cutting-edge product plans.
"This storage business has become an intricate web of alliances and partnerships, and you may not want all of that to become public," Webster said. "This gives them an awful lot of latitude to do things in private that they would have to otherwise make public.
"That could be a good thing if you're planning a move that is essentially disruptive--which means that you're thinking about changing the rules of the game in the storage business."
For Ben & Jerry's, going private could allow company founders Ben Cohen and Jerry Greenfield to nurture the company's socially and environmentally conscious image without worrying about pleasing Wall Street. Many Ben & Jerry's aficionados worried that the company, which buys products from local farms and donates about 7.5 percent of profits to charity, would be forced to put a premium on cost efficiency instead of social concerns.
Although the Seagate deal and speculation surrounding a possible transition at Ben & Jerry's may be the leading edge of a going-private trend, investors needn't worry that individuals will embark on a massive wave of takeovers. The last time that happened was in the 1980s, when high-profile financiers borrowed heavily to buy mismanaged companies, then sold off the pieces and slashed costs to repay the debt.
That isn't likely to happen in the near future, said University of San Francisco economics professor Michael Lehmann. That's because today's business climate is drastically different from the climate of the 1980s. Back then, many companies were bloated with inefficiencies and rife with shareholder dissatisfaction.
"Companies may go private here and there, but there won't be a broader retreat from the market," Lehmann said. "In the '90s, stocks rose, and now it's not easy to buy companies on the cheap...There's been such a big drive to make companies leaner that the benefit of a takeover has been squeezed out."