Seagate buyout case

This resulted in occurrences of Seagate's stake in VERITAS exceeding the entire market value of Seagate's equity, essentially assigning a negative value to Seagate's large and market-leading disk drive business.

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Question 2: What are the benefits of leveraged buyouts? The management are the greatest winners because of the informational efficient advantage that they enjoy. Managers must rely on private equity to fund the acquisition, and private equity funds often rely on managements knowledge of the firm, its markets, and its customers for the success of the transaction 3. However, during negotiations between the buyer and seller, the buyer will present the downside case and the seller will present the upside case to get a more favorable valuation. Using 6. Answer: The benefits of Leverage Buyout LBO are already discussed in above question, however, in addition to those benefits, Seagate Technology has a benefit over other disk drive firms and that makes this leverage buyout an attractive strategy. Even if they were able to sell a big chunk of their VERITAS stake, the transaction would be taxable at both the corporate and personal levels. When, the Casementors. The base case was used throughout our entire analysis because it takes into account a more realistic mix of the upside and downside possibilities that may happen to the company in the long run. There can be large disconnect between the interests of private equity funds and those of the public investors. However considering the uncertain demand, very short product life-cycle for Disk drive business, we believe that it is considerably riskier business as compared to a normal business. A large stake of VERITAS Software Corporation's stocks is owned by Seagate Technology, because of which its stock price is doubled from its original price , however, the share price of Seagate Technology hardly changed for a long time. Applying the current market multiples do Seagate Technology Buyout case solution not consider that the current multiples may be lower of higher than historical standards.

We used the risk-free rate of 5. After much debating, the best option seemed to fall into two stages, a leveraged buyout of Seagates disk drive operations, followed by the tax-free acquisition of Seagates remaining assets by VERTIAS Software Corporation.

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However considering the uncertain demand, very short product life-cycle for Disk drive business, we believe that it is considerably riskier business as compared to a normal business.

With this divestiture, Seagate was able to restructure their assets sale of disk drive assets and liquidation of shares without having to apply any corporate taxes. Answer: The benefits of Leverage Buyout LBO are already discussed in above question, however, in addition to those benefits, Seagate Technology has a benefit over other disk drive firms and that makes this leverage buyout an attractive strategy.

seagate technology buyout pdf

Despite the management's previous efforts to improve its market value, the share price of Seagate had no change. The value drivers are the inputs used to compute the terminal value and due to the uncertainties involves, there is risk of volatility of the perpetual free cash flows.

Private equity can have a competitive edge over strategic acquirers because selling firms are more willing to let a private equity fund perform due diligence than a rival 2.

Seagate technology buyout case study solution scribd

Private equity returns can be attributed to a large extent to financial manoeuvring rather than managerial skills. The unlevered cost of capital for Seagates operating assets is Answer: Seagate Technology was badly undervalued as far as stock market is considered, and due to this, the company decided to go for leverage buyout option. The case also mentions Seagates target debt rating would be BBB or better. The limited partners may have no interest in holding the shares that have been 2 distributed to them, but want to invest the proceeds of selling these shares elsewhere. This resulted in occurrences of Seagate's stake in VERITAS exceeding the entire market value of Seagate's equity, essentially assigning a negative value to Seagate's large and market-leading disk drive business. What should the capital structure look like? The winners of this transaction include: 1 Seagate since they were able to accomplish their objective and increase market value, 2 Silver Lake since they can benefit from the acquisition of the disk drive manufacturing assets of Seagate, and 3 VERITAS since they can benefit from the acquisition of the remaining assets of Seagate. This was favourable for Seagate because this rating affected their ability to receive future financing. The Multiple Approach requires careful use, since the values of multiples keep on changing. Question If the debt reduces from - millions therefore the cost of capital readjusts favourably. There can be large disconnect between the interests of private equity funds and those of the public investors. This is just one step up from their BB or B ratings listed as junk and high risk.

Applying the current market multiples do Seagate Technology Buyout case solution not consider that the current multiples may be lower of higher than historical standards.

The unlevered cost of capital for Seagates operating assets is So, in my opinion Seagate Technology is definitely a winner in this scenario, as the business could successfully accomplish its objective.

Seagate technology buyout case study solution

We used the risk-free rate of 5. Private equity can have a competitive edge over strategic acquirers because selling firms are more willing to let a private equity fund perform due diligence than a rival 2. Is it necessary to divest the Veritas shares in a separate transaction? When, the Casementors. With this decision, Seagate would have to look to outside financing in order to continue their ideas of expansion and consolidation. The Multiple Approach requires careful use, since the values of multiples keep on changing. The option to enter into a two-fold leverage buyout transaction enables Seagate to accomplish their goal of increasing their market value. The case also mentions Seagates target debt rating would be BBB or better. The important thing for Seagate was to maintain their rating of BBB, or increase it.

Managers must rely on private equity to fund the acquisition, and private equity funds often rely on managements knowledge of the firm, its markets, and its customers for the success of the transaction 3. While these growth rates are quite high, this can be explained by the exponential growth often seen in technology companies.

Seagate technology buyout case questions

Question The debt is borrowed between BB and B rated securities, assume the weight of each is 0. Is the rigid disk drive industry conductive to a leveraged buyout? The value drivers are the inputs used to compute the terminal value and due to the uncertainties involves, there is risk of volatility of the perpetual free cash flows. The important thing for Seagate was to maintain their rating of BBB, or increase it. On the other hand, VERITAS as well as Silver Lake cannot be considered as losers because they can also take advantage of the assets resulted from the transaction they bought from Seagate Technology and generate more profit from it. Question Question Free cash flow, all the assumptions prescribed followed, no additional assumptions is considered. This amount is reasonable for a leverage buyout Seagate Technology Buyout pdf deal of a leading world tech company. This would increase the debt of the company. This resulted in occurrences of Seagate's stake in VERITAS exceeding the entire market value of Seagate's equity, essentially assigning a negative value to Seagate's large and market-leading disk drive business. The unlevered cost of capital for Seagates operating assets is The base case was used throughout our entire analysis because it takes into account a more realistic mix of the upside and downside possibilities that may happen to the company in the long run. What should the capital structure look like? The management are the greatest winners because of the informational efficient advantage that they enjoy.
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