Seagate Technology Buyout

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Part A: Analysis Business Model Seagate and Deal Rationale #1: Why is Seagate undertaking this transaction? How suitable is an LBO for a technology firm like Seagate, and what are the potential sources of value creation in the transaction? Motivate your answer. The Seagate management believes that the company needs heavy and intensive that are not feasible if Seagate Inc. remains a public company. Other capital re-organizations alternatives involve significant tax liability and considering the present state with Seagate being a public company, tax liability will result in loss of wealth for the shareholders since it involves corporate taxes as well as personal tax liability. The stock of Seagate Inc., is experiencing an adverse value gap such that the market value of the corporation is significantly lower than the asset value. The management have evaluated different options to re-state the stock price to represent the fair value of the group. These includes divestment, discontinue and other capital restructuring strategies resulting in considering an eventual swap with VERITAS Ltd. stock for Network and Storage Management Group. Seagate management have a fiduciary duty to protect the wealth of shareholders and ensure a fair offer tendering hence they have narrowed down to opt for this two-staged LBO transaction. Given that the expected cash flows of Seagate were stable and established, it makes leveraged buyout feasible. The borrower is well credit rated, cash flows are steady and the interest rate offered is financially reasonable hence the leveraged-buyout is suitable for Seagate. There are 3 potential sources of value creation in this transaction: 1. Use of a risk hedging financial contract, the swap 2. Acquisition of an undervalued target 3. Evading tax liability #2 consider the following parties: (i) Seagate shareholders; (ii) Silver Lake

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