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Seagate Technology Buyout Case Analysis
FNCE 601, Chenxi Zhu (00311724)
September 28, 2015

Seagate was one of the world’s largest manufacturers of computer disk drives and related data storage devices. Besides the disk drive operations, Seagate’s main asset was a significant stake in Veritas’s common stock. The entire market capitalization of Seagate was approximately $14.6 billion (stock price: $64.25, shares outstanding: 227.2 million). However, the market value of the Seagate’s stake in Veritas was about $21.6 billion (stock price: $168.69, shares outstanding: 393.6 million). It seemed that the market assigned no value to Seagate’s disk drive business, despite its large size and market-leading position. Therefore, we can tell Seagate’s stock price was underestimated. There are two main reasons to cause the arbitrage: * Value of Seagate’s stake in Veritas’s common stock would be significantly reduced due to high tax liability if it ever tried to sell these shares. * Stock market favored Internet businesses and companies that manufactured cheaper data storage hardware. And the market did not favor disk drive business because of its volatile revenue, short-life cycle as well as heavy capital needs in R&D investment. Therefore, Seagate’s core disk drive operations were not receiving full value in the stock market.
In addition, there was another soft issue contributed to the low stock price of Seagate’s shares. Seagate’s employee held stock options and restricted stock in the company. On the other hand, due to the increasing market value of the Veritas stake, Seagate’s stock price was becoming less tied to the performance of Seagate’s core disk drive business. Thus it was becoming very difficult to provide stock as incentive to employees.
Since the Seagate’s stock was undervalued, I suggest people take advantage of this arbitrage opportunity. Before...

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