The stock price of STEC, Inc. (NASDAQ:STEC), provider of enterprise class, solid-state storage solutions surged by more than 86 percent to $6.71 per share on reports that it will be acquired by Western Digital Corporation (NASDAQ:WDC) on Monday afternoon around 2:00 P.M. in New York.


According to the announcement of Western Digital Corporation (NASDAQ:WDC), its wholly-owned subsidiary, HGST agreed to buy STEC, Inc. (NASDAQ:STEC) for approximately $340 million in cash or $6.85 per share. STEC’s stock price closed at $3.59 per share last Friday, June 21.

Western Digital Will Continue Support For Products and Clients

Western Digital Corp. (NASDAQ:WDC) stated that acquiring STEC Inc (NASDAQ:STEC) would boost the existing solid-state storage capabilities of HGST and accelerate its expansion in the rapidly growing market of enterprise SSDs. The company cited that STEC has a strong engineering talent and intellectual property that complements HGST’s technical expertise and capabilities. HGST plans to continue support for STEC’s products and to collaborate with clients to understand their future needs.

The company also emphasized that HGST remains committed to its joint development program with Intel Corporation (NASDAQ:INTC), and will continue to deliver existing and future SAS-based SSD products with Intel.

Steve Milligan, president and CEO of Western Digital Corp. (NASDAQ:WDC) said, “Solid state storage in the enterprise will play an increasingly strategic role in the future of Western Digital. This acquisition is one more building block in our strategy to capitalize on the dramatic changes within the storage industry by investing in SSDs and other high-growth storage products.”

On the other hand, Mark Moshayedi, president and CEO of the company expressed excitement in completing the deal. He said, “This merger will enable our world-class engineering team and IP to continue to make a significant contribution to the high-performance enterprise SSD space that has long been sTec’s focus.”

Good Timing as STEC is Struggling With a New Business Model

Gary Mobley, analyst at Benchmark, commented that the transaction is not surprising given the fact that the board of directors and management of STEC, Inc. (NASDAQ:STEC) are dealing with a proxy fight and the company is struggling with its new business model aimed at selling its SSDs through direct sales or OEM partnerships.

Mobley believes that the company was offered to usual buyers and did not receive higher proposals.  He recommended a sell rating for the shares of STEC.

Mobley also opined that the deal is more favorable to STEC shareholders, and Western Digital made the right decision in acquiring the company. “Western Digital is prepared to pay $340 million in cash for sTec, or $6.85/share. Net of sTec’s $133 million in cash as of March 31, 2013, Western Digital is paying $207 million for the enterprise value (EV) of sTec. This represents an EV/Sales (FY13) multiple of ~2.0x. However, considering sTec should burn $70-$80 million in cash from operations during FY13, the price Western Digital is paying for sTec seems more favorable for sTec shareholders. It makes sense for a HDD vendor such as Western Digital to buy sTec,” wrote Mobley in a note to investors.

The board of directors of STEC and Western Digital expect to complete the transaction in the third or fourth quarter of 2013.