Seagate

Seagate Technology Buyout

I. INTRODUCTION

In 1999, Seagate Technology, Inc., decided that in order to increase their market value, they needed to make some big changes. Due to their undervalued stock price, Seagate decided to undergo a leveraged buyout (LBO) with Silver Lake Partners L.P. During this time, four main concerns arose among the parties involved: • • • • How can Seagate address the company’s low stock price? How should the buyout be financed? What should the capital structure look like? How much should investors pay to acquire Seagate’s disk drive operations? How can Seagate address VERITAS Software Corporation’s needs and concerns? After analyzing the case and talking to executives at Silver Lake and Seagate, we think that Seagate’s low stock price is best addressed by a leveraged buyout with a new capital structure composed of 45% equity and 55% debt. Furthermore, we have found that the company is worth approximately $2 billion in the buyout. Finally, VERITAS should agree to participate in the deal because they will also win by retiring a portion of their stock. The subsequent sections of this report will further explain how we arrived at these conclusions.

II. ASSUMPTIONS

In analyzing the capital structure, the value of the company, and stock price of Seagate Technology, we are operating under the following assumptions: • • • Corporate tax rate of 34% Market risk premium of 9% (based on 75-year historic average) Capital expenditures from Projected Operating Performance of Seagate Disk Drive Business are Seagate’s projected net working capital • Seagate had no NCS before the leveraged buyout.

III. HISTORY

Brief History of Seagate Technology LLC and the Technology Industry

1970s - Buyouts are born.

1979 - Seagate is founded by a group of five technology entrepreneurs and executives.

1980s - Significant growth in use of buyouts occurs.

Mid-1980s - Slowdown in PC sales occurs. Computer manufacturers cut back significantly on...