Seagate

9-201-063

REV. MARCH 12, 2002

GREGOR ANDRADE

STUART GILSON

TODD PULVINO

In early November 1999, Stephen Luczo, president and chief executive officer of Seagate

Technology, Inc. (“Seagate”), met with representatives of the private equity firm Silver Lake Partners

L.P. to discuss a major restructuring proposal. Seagate was one of the world’s largest manufacturers

of computer disk drives and related data storage devices, with approximately $6.5 billion in annual

revenues. The restructuring contemplated a leveraged buyout of Seagate’s disk drive operations,

followed by the tax-free acquisition of Seagate’s remaining assets by VERITAS Software Corporation,

an independent manufacturer of storage management software. Besides the disk drive operations,

Seagate’s main asset was a significant ($21 billion) stake in VERITAS’s common stock.

Management and Silver Lake believed the two-step transaction could generate significant wealth

gains for Seagate shareholders. The need to take some action had become increasingly apparent since

late summer, when, following a major run up in VERITAS’ stock price, the market value of Seagate’s

VERITAS stake had come to substantially exceed Seagate’s entire market capitalization. Management

attributed this “value gap” to two factors. First, the company would incur a significant tax liability if

it attempted to monetize its VERITAS stake by selling the shares, and this liability was capitalized in

Seagate’s stock price. Second, the company’s core disk drive operations were not receiving full value

in the stock market, which currently favored Internet businesses and companies that manufactured

cheaper data storage hardware. The proposed transaction was designed to allow Seagate

shareholders to realize full value for the company, by distributing the VERITAS stock tax free, and by

selling the disk drive operations at fair market value.

The transaction raised a number of thorny issues, however. First was the question of...