Melissa Bockhold Heather Coddington - Franklin College

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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). 14
Buyout Investors The second step, illustrated on the following page, would involve merging the remaining Seagate shell corporation with VERITAS through a tax-free stock swap. Each share of Seagate stock outstanding would be exchanged for a combination of cash and VERITAS shares. VERITAS would then acquire the Seagate shell corporation and its 128 million shares of VERITAS stock. In exchange, Seagate would receive 109 million new VERITAS shares. No corporate or personal tax liability would be created by the transaction as long as the merger qualified as “reorganization” under Section 368(a) of the Internal Revenue Code (Andrade 7). STEP ONE: Seagate sells all operating assets to group of investors. I. Cash (Buyout purchase price) • Operating Assets • $765 Million Cash SEAGATE TECHNOLOGY 15
Page 1 and 2: Seagate Technology Buyout By: Melis
Page 3 and 4: I. INTRODUCTION In 1999, Seagate Te
Page 5 and 6: 1997 1997-1998 July 1998 May 1999 J
Page 8 and 9: B. Competition Competition is the m
Page 10 and 11: to twelve months, is a new opportun
Page 12 and 13: inventories of disk drive component
Page 16 and 17: STEP TWO: Seagate exchanges existin
Page 18 and 19: 100% 90% 80% 70% 60% 50% 40% 30% 20
Page 20 and 21: the value seen in its VERITAS holdi
Page 22 and 23: For all the reasons listed above, S
Page 24 and 25: large amount of confidence in Seaga
Page 26 and 27: capital structure should have a hig
Page 28 and 29: how capable a company is to pay bac
Page 30 and 31: 1.98. Although, Seagate is much low
Page 32 and 33: The next ratio we calculated was Ne
Page 34 and 35: Seagate Averages (1981- 1999) Disk
Page 36 and 37: ii. Analysis of Historical Financia
Page 38 and 39: experience? What will their earning
Page 40 and 41: Lake and other potential investors
Page 42 and 43: CFO Kenneth Lonchar stated, “We w
Page 44 and 45: X. SILVER LAKE PARTNERS INTERVIEW M
Page 46 and 47: Copy of thank you note mailed to Al
Page 48: XII. WORKS CITED Austin, Alan. Mana

Melissa Bockhold Heather Coddington - Franklin College

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