Seagate Technology Buyout

661 Words3 Pages
1 Transaction reasoning: Seagate Technology possesses two major resources: its disk drive business and a part of Veritas business. The Veritas stock price has highly increased, making Seagate’s stake in Veritas higher than Seagate’s own market capitalization. Seagate’s sales and leading position in the industry on it’s core disk drive business, valued as zero, and even negative values. The main reason for the transaction is to separate Seagate’s two business to recognize a fair value of the disk drive operations. Separate Transaction reasoning: There are three main reasons why the Veritas shares should be divested in a separate transaction. The first one is to escape tax. Separating the deal in different transactions, and using a tax-free stock swap, implies that stocks are not sold ( if company as a whole were to be sold ) , therefore escaping from a huge tax liability bill. The second one it’s obvious. The value to the separate transitions would be higher than a combined one. Being the value of the disk drive business diluted in the Veritas stock value, a separation based deal would trigger a valuation of the Veritas business close to its stock price value, plus a higher price for the disk drive business. Finally Silver Lake Partners’ aims to acquire the disk drive operations and probably are not interested in the Veritas stock, that is a very close exchange of money for stock. Transaction Winners and Losers: Main winners would be Seagate shareholders. Will avoid taxes on the Veritas stock swap and acquire a more liquid asset. Seagate shareholders will also receive cash from the disk drive operations selling. Seagate management probably will also come out as winners due to the well planned LBO and would probably be kept on by the new disk drive operations owners. Veritas shareholders would be also winners. They would acquire back stock on a lower price
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