Melissa Bockhold Heather Coddington - Franklin College

was to turn the company private since disk drive producers had a hard time obtaining
capital for long-term projects. He turned to Silver Lake Partners L.P., a private equity
firm, for help (Andrade 1).
VII. THE BUYOUT
In May of 1999, Seagate sold one of its companies, the Network & Storage
Management Group (NSMG), to VERITAS in return for 155 million shares of VERITAS
stock. The transaction made Seagate VERITAS’s largest stockholder, creating an
ownership stake of over 40% (Andrade 6).
When a few problems regarding stock prices arose, concerned shareholders were
not far behind. Following the transaction, the market was failing to recognize the value
of Seagate’s stake in VERITAS, as evident from a 200% increase in VERITAS stock
versus only a 25% increase in Seagate’s stock. The board felt that the market was
incredibly under pricing Seagate’s stock. After two failed attempts to increase Seagate’s
stock price and unlock its value from VERITAS, the company turned to Morgan Stanley
for help. In early November of 1999, Morgan Stanley arranged a meeting between
Seagate executives and representatives of Silver Lake Partners (Andrade 6).
After several months of discussion, Silver Lake delivered a proposal and potential
solution to Seagate’s problem. This proposal involved a complicated two-step
transaction. The first step, illustrated below, would involve Seagate selling off its disk
drive business, including about $765 million in cash, to a newly-formed company
controlled by Silver Lake. The purchase would be financed through a LBO in which
Silver Lake and other private equity investors would provide a portion of the selling price
through equity, and the rest would be financed through debt (Andrade 7).
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