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Seagate Technology

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Seagate Technology Buyout
CASE SUMMARY
In May of 1999, Seagate sold one of its companies, the Network & Storage Management Group (NSMG), to VERITAS in return for 155 million shares of VERITAS stock. The transaction made Seagate VERITAS’s largest stockholder, creating an ownership stake of over 40%. When a few problems regarding stock prices arose, concerned shareholders were not far behind. Following the transaction, the market was failing to recognize the value of Seagate’s stake in VERITAS, as evident from a 200% increase in VERITAS stock versus only a 25% increase in Seagate’s stock. The board felt that the market was incredibly under pricing Seagate’s stock. After two failed attempts to increase Seagate’s stock price and unlock its value from VERITAS, the company turned to Morgan Stanley for help. In early November of 1999, Morgan Stanley arranged a meeting between Seagate executives and representatives of Silver Lake Partners. After several months of discussion, Silver Lake delivered a proposal and potential solution to Seagate’s problem. This proposal involved a complicated two-step transaction.  The first step would involve Seagate selling off its disk drive business, including about $765 million in cash, to a newly-formed company controlled by Silver Lake. The purchase would be financed through a LBO in which Silver Lake and other private equity investors would provide a portion of the selling price through equity, and the rest would be financed through debt  The second step, would involve merging the remaining Seagate shell corporation with VERITAS through a tax-free stock swap. Each share of Seagate stock outstanding would be exchanged for a combination of cash and VERITAS shares. VERITAS would then acquire the Seagate shell corporation and its 128 million shares of VERITAS stock. In exchange, Seagate would receive 109 million new VERITAS shares. No

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