Melissa Bockhold Heather Coddington - Franklin College

Question: How did Seagate differ from an average leveraged buyout at that time?
Why was Silver Lake able to invest in what many perceived to be an
unstable industry?
Answer: There used to be a Harvard Business Case Study that talked about the disk
drive industry. Their final answer was that the technological industry was
dying and no one should invest in it. Obviously, they don’t have that case
anymore.
Silver Lake Partners formed during a time when the technology industry
was in fact capable of investing in safely. However, many people thought
this industry was not suitable for buyouts or investing. This industry was
difficult to understand and their products life-cycles changed rapidly.
Silver Lake Partners formed around the idea that these companies were in
fact stable and they could be supported through investments.
Seagate was an opportunity for Silver Lake to unlock the puzzle and come
up with an effective financial engineering plan.
The disk drive business was regarded as a commodity business that did not
make much money and their prices weren’t stable, but went down every
year. People didn’t understand why anyone would want to invest in a
crummy market. However, Silver Lake understood that Seagate and other
businesses like it did not have to be viewed as crummy, but could in fact
be profitable.
Question: What are the best ways to fix a low stock problem when a company feels
that its stock price is being undervalued by the market?
Answer: Maintaining investor relations is important as well as getting out
information that your company is actually doing very well.
Another possibility is to use a company’s excess cash to buy back stocks
or make acquisitions to enhance the value of their company.
Many companies try these above mentioned ideas first, and then turn to
leveraged buyouts. Companies with low stock prices feel that they are not
appreciated by the market and therefore it makes sense for them to go
private. Then they can concentrate on restructuring the company in order
to be more attractive to the market or to strategic buyers. Then at some
date in the future, it is possible to have built your business back up to
where they feel they can go public again.
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