Seagate Technology Buyout Harvard Case Solution & Analysis

Seagate Technology Buyout Case Solution

Introduction:

Seagate Technology, Inc., which is the market leading manufacturer of computer hard drives, was founded in 1979.The company held market share of 21.1% of the total disk drive market in 1999, an industry where six companies account for 95% of sales. Seagate also had 41% of the market share in the Enterprise and the market share 21.1% was for the Desktop disk drive market sectors in 1999. In May 1999, Seagate decided to sell its Network & Storage Management Group to VERITAS Software Corporation, an independent manufacturer of storage management systems, for approximately 155 million shares of VERITAS stock. This agreement gave Seagatean ownership stake of over 40% and it became VERITAS' largest stockholder.Seagate Technology Buyout Case Solution

The stock price of Seagate was increased by 25% from the period June 1999, whereas the share price of VERITAS was increased by 200%, which was 175% more than the share price growth of Seagate. Due to the significant increase in the market value of share price of VERITAS, the 40% stake value of Seagate in VERITAS increasedas compared to the entire market value of the Equity of Seagate.

For this purpose of buyout, Stephen Luczo met Silver Lake Partners L.P a private equity firm to discuss the options for the proposal. The best option seemed to fall into two stages; a leveraged buyout of Seagate’s disk drive operations, followed by the tax-free acquisition of Seagate’s remaining assets by VERTIAS Software Corporation.

Detail of Issues:

The problems regarding the buyout of the Seagate were:
• How Seagate should address the low stock price of the company?
• How the buyout should be financed?
• How much investors should pay to acquire Seagate’s disk drive operations?
• How should VERITAS Software Corporation’s needs should be addressed?....................

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