CASE HARVARD: Seagate Technology Buyout (39)
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- Why is Seagate undertaking this transaction? Is it necessary to divest the Veritas shares in a separate transaction? Who are the winners and losers resulting from the transaction?
- What are the benefits of leveraged buyouts? Is the rigid disk drive industry conducive to a leveraged buyout?
- Luczo and the buyout team plan to finance their acquisition of Seagate’s operating assets using a combination of debt and equity. How much debt would you recommend that they use? Why?
- Based on the scenarios presented in Exhibit 8, and on your assessment of the optimal amount of debt to be used in Seagate’s capital structure, how much are Seagate’ operating assets worth? For both of the assumptions listed, estimate the value of Seagate’s operating assets. Assume that of the $800 million in cash that buyout team will acquire as part of the transaction, $500 million is required for net working capital and $300 million is excess cash. (a) Assume that the buyout team plans to maintain its debt at a constant percentage of the firm’s market value. (b) Assume that the buyout team plans to pay down its debt as cash flows permit until a terminal debt level of $700 million reached
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