Melissa Bockhold Heather Coddington - Franklin College

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capital structure should have a higher-than-average amount of equity. We do not feel that senior debt should exceed 91% of the total leveraged debt used, and because of the high interests rates that can reduce a leveraged firm’s ability to weather downturns in the business cycle, we feel that 5% is the maximum amount that the company should use in subordinate debt. C. Valuation of Seagate There are three key considerations that must be included in any company valuation. These include company, competitor, and industry information; analysis of historical financial statements; and projected financial statements going out three to five years (Company Worth). When determining the value of Seagate’s disk drive business, we considered all the above. i. Company, Competitor and Industry Information Seagate holds a 21.1% market share in the worldwide disk drive industry as of 1999. They are dominating in almost all sectors, evident from a 41.0% share in the enterprise market where the company experiences above-average gross margins of 20- 25%, and a 21.1% share in the desktop market where the company rakes in 10-15% gross margins. The storage networking market and consumer electronics market are areas the industry feels will grow in the near future. Looking at the following sales growth and total revenue growth tables we can see where the disk drive industry has been and where it is probably headed. 26
Worldwide Hard Disk Drive Industry Historical Performance & Projections (1991-2003E) 1992 1993 1994 1995 1996 1997 % Change in Total Sales 16 34.9 33.2 30.4 18.7 21 % Change in Total Revenue 7.8 -17.1 5.7 0.1 20 -0.9 1998 1999 2000E 2001E 2002E 2003E % Change in Total Sales 11.1 15.5 13.2 13.1 12.1 12.6 % Change in Total Revenue -6.8 -0.8 5.4 6.6 7.2 7.4 When looking at the sales growth of the worldwide hard disk drive industry, we can see that the industry experienced very high growth between 1993 and 1997. As the market matured, the growth decreased drastically from 21% in 1997 to 11.1% in 1998 and 15.5% in 1999. Industry analysts have predicted that the market will continue to experience a modest amount of growth in 2000 through 2003 primarily because of the almost certain increases in hard drive demand in storage networking and the consumer electronics markets (Andrade 3-4). The revenue growth in the worldwide hard disk drive market is much more volatile and less predictable. While sales for the entire industry grew rapidly from 1993- 1997, the revenue growth ranges from a disappointing -17.1% to a very promising 20.0%. Therefore, revenue growth does not seem to be a reliable indicator of market performance. It is vitally important to know where a company stands when it comes to liquidity. In a situation like the one Seagate is in, it would be very helpful to know how much liquidity Seagate has. In order to get a better understanding of their situation, we calculated their financial ratios. The fundamental analysis was done using Seagate, Quantum HDD, Western Digital and Maxtor’s 1999 financial ratios (Exhibit A). The first ratio we looked at was the Current Ratio. This financial tool is used to determine 27
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 14 and 15: was to turn the company private sin
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 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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