Melissa Bockhold Heather Coddington - Franklin College

the value seen in its VERITAS holdings would result in a higher share price. Both of
these actions, however, failed in increasing the incredibly low stock price, so Seagate’s
management had to look for other options.
The company could have cut its losses by liquidating its assets and completely
getting out of the market. The problem with these options lies in the fact that huge tax
liabilities would be incurred for the company and its shareholders, and the entity would
be permanently terminated. The only other option for Seagate was a buyout or merger.
The plan they formulated and executed, a leveraged buyout, was an alternative to
liquidation. First, the creation of corporate or personal tax liabilities would be avoided.
Also, the company would be able to continue operations. As a result of the leveraged
buyout, Seagate will be a privately held company, and they will no longer trade stock in
today’s market. After the equity investors exit, Seagate will be able to re-enter the
market and issue their stock to be valued based on the company’s performance alone.
Management hopes that this action will result in the fair valuation of their stock once
public status is reinstated (Austin).
We agree with the Seagate senior management’s decision to go ahead with the
two-stage leveraged buyout. By avoiding heavy taxation, everyone wins. This was the
only option for Seagate to use if they were to ensure both the happiness of shareholders
and the future of the Seagate name and company.
B. Buyout Financing & Capital Structure
It is apparent from the above section that, over time, significant changes have
occurred in the capital structure of companies post-buyout. The downturn of the business
cycle, the near collapse of the junk bond market and diminished structural advantages
20