Seagate Study Paper

Financial 448

Pulvino

Seagate Technology Buyout

Recommended Assignment Questions

1 . Why is Seagate executing these transactions (the acquistion and the inventory swap with Veritas)? Whom are the champions and losers resulting from these transactions (e. g., Seagate shareholders, Seagate management, Veritas shareholders, Sterling silver Lake Partners)? 2 . Who also benefits from universal leveraged buyouts? Who manages to lose? Is the rigid disk travel industry conducive to a leveraged buyout? NOTE: For the purposes of questions three or more through a few, assume that after the buyout, Seagate will fees NO AMORTIZATION EXPENSE. Consequently EBITA and EBIT will be identical. three or more. Luczo plus the buyout staff plan to financing their acquisition of Seagate's operating assets utilizing a combination of debts and collateral. How much financial debt would you recommend that they use? Why? (Hint: use the projections in Exhibit 8 and the info in Exhibit 11, using your personal thinking based on the text of the case, to estimate a fair annual quantity of financial debt the company ought to carry) 4. Based on the scenarios shown in Show 8, and your assessment of the optimal amount of debt to get used in Seagate's capital framework, estimate the importance of Seagate's operating assets, if, perhaps the following: As of June 31, 1999, Seagate had $1. 623 billion of cash about its balance sheet. As part of the purchase, $704 mil will be used to payoff existing debt and $765 , 000, 000 will be utilized in the buyout team. From the $765 mil, $500 mil is required for net seed money (and will grow like a % of sales) and excess cash is $265 million. Any cash leftover at the time the transaction can be consummated will be distributed to Seagate investors. The buyout team will initially acquire $1. 2 billion to finance the deal, and will pay down debt since cash runs permit before the optimal debt level can be achieved. With this question, assume that the long-run target degree of debt is usually $750 , 000, 000. If cash flow is bad in a presented year,...

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