Seagate announced its agreement to acquire Xyratex on December 23, 2013, offering $13.25 in cash for each Xyratex share. The deal brought together two distinct businesses: Xyratex’s hard-disk-drive (HDD) test equipment operation and its enterprise storage and high-performance-computing (HPC) systems business. Seagate said the acquisition would strengthen its drive-testing supply chain while expanding its storage-solutions portfolio.
What Seagate agreed to buy
The merger agreement was signed on December 21, 2013, by Seagate Technology International, its wholly owned acquisition subsidiary Phoenix Acquisition Limited, and Xyratex Ltd. Seagate Technology International was an indirect subsidiary of Seagate Technology plc. Under the agreement, Xyratex would survive the merger as an indirect, wholly owned Seagate subsidiary, and each outstanding Xyratex common share would be converted into the right to receive $13.25 in cash, subject to the agreement’s terms.
The acquisition included Xyratex’s HDD capital test equipment business as well as its enterprise data storage systems and HPC business. These were business operations, not a consumer-product offer or an investment opportunity for individual readers.
Why Seagate wanted Xyratex
Drive testing and supply-chain integration
Seagate said Xyratex’s HDD test equipment would support its vertically integrated supply and manufacturing chain. The equipment was used to test drives, a process Seagate said became more time-consuming as average drive capacity increased.
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“As the average capacity per drive increases to multi-terabytes, the time to test these drives increases dramatically. Therefore, access to world-class test equipment becomes an increasingly strategic capability.”
— Dave Mosley, Seagate President of Operations and Technology, at the December 2013 announcement
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This was Seagate’s rationale for the acquisition, not an independent assessment of the deal’s eventual results.
Expanding storage and HPC offerings
Xyratex’s enterprise storage systems and HPC business offered Seagate a way to broaden its storage-solutions portfolio beyond drives and related manufacturing capabilities. At announcement, Seagate said it intended to operate the storage and HPC business as a standalone entity and focus on improving and expanding it.
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In September 2014, Seagate described its Cloud Systems and Solutions initiative as building on its Xyratex and EVault acquisitions within an Intelligent Information Infrastructure strategy. That later announcement shows how Seagate framed the acquisition in its strategy; it does not establish the commercial performance of the deal or the long-term fate of each Xyratex product line.
What the announced price and closing figure mean
| Figure | What it describes | Source and date context |
|---|---|---|
| $13.25 per share | All-cash consideration offered for each Xyratex share, subject to the merger agreement’s terms. | Seagate and Xyratex announcement, December 23, 2013. |
| Approximately $374 million | Announced transaction value, including approximately $80 million in Xyratex cash on its balance sheet as of August 31, 2013. | Seagate and Xyratex announcement, December 23, 2013. |
| Approximately 27% | Premium to Xyratex’s closing share price on December 20, 2013. | Seagate and Xyratex announcement, December 23, 2013. |
| Approximately $376 million | Cash Seagate later reported paying to complete the acquisition. | Seagate fiscal 2014 Form 10-K, filed in 2014; the transaction closed March 31, 2014. |
The $374 million announced value and the $376 million closing figure refer to different transaction contexts and were reported at different stages: the first included Xyratex’s stated balance-sheet cash as of August 31, 2013, while the second was Seagate’s later report of cash paid at closing. They should not be treated as two competing quotes for the same figure.
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Conditions, shareholder support and completion
Completion depended on Xyratex shareholder approval, expiration or termination of applicable Hart-Scott-Rodino waiting periods, and the absence of legal or governmental restraints preventing the transaction, among other customary conditions. Certain Xyratex directors and officers, together with Baker Street Capital, signed voting agreements covering approximately 22.9% of Xyratex’s outstanding shares; they agreed to vote those shares in favor of the merger.
The merger agreement also included termination rights and a potential $13.1 million termination fee in specified circumstances. Seagate later reported that the acquisition closed on March 31, 2014, for approximately $376 million in cash.
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Xyratex CEO Ernie Sampias said the company’s board had conducted a strategic review and concluded the all-cash deal offered an attractive premium and maximized shareholder value. That was the board’s stated view at the time of the announcement, not an independent finding about whether the acquisition ultimately created value.
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