Seagate Technology Buyout Harvard Case Solution & Analysis

Seagate Technology Buyout

Company Background:

Seagate has the market share of 21.1% and the main competitors are Quantum with 17.1% share and IBM with 14% share of the market. Seagate has the annual revenue of $6.5 billion.

The main assets of the company are the disk drive operations and also the significant $21 billion common stock in VERITAS Software Corporation, which is an independent manufacturer.

Seagate Technology Buyout Case Solution

Problem:

The main problems for Sea gate are the low stock price despite the leading share in the market and the market value of VERITAS stake has become greater than the market capitalization of Sea gate.
The main reason behind the problems according to the management of Sea gate is the value gap due to two factors.
The value of Sea gate’s stock in VERITAS is impaired by the fact that if Sea gate tries to sell the stock, then it would induce large tax liabilities.
Stock market favors the internet businesses and companies that manufacture cheaper storage hardware. Sea gate’s main disk drive operations are not receiving their full value in the stock price.

Possible Solution:

There are three possible solutions to increase the stock price of Seagate.

Seagate should repurchase its own stock in the open market. However, this has been done before and has been unsuccessful.

oreover, it depends on the market correcting share price to the intrinsic equity value however, it might not work if the market think it is right to begin with.

Selling the shares in VERITAS is another option for Seagate. However, it is limited by a prior agreement with VERITAS and it might affect the shares of Seagate. The significant tax liability that will arise from selling the stake in VERITAS will be capitalized in Seagate’s stock price..................................

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