Seagate Case
Seagate Buyout Case
Group 5
Heng Qiao
Eduardo Pereira
Wei Wang
Yanan Pei
Introduction of the companies
Seagate Technology, Inc. is one of the world’s largest manufacturers of computer disk drives and related data storage devices with approximately $6.5 billion in annual revenues. In early November 1999, Luczo, president and CEO of Seagate considered a restructuring proposal with Silver Lake, a successful private equity firm that is specified in technology business investing.
In May 1999, Seagate sold its Network & Storage Management Group to VERITAS Software Corporation, an independent manufacturer of storage management systems, for approximately 155 million shares of VERITAS stock. With an ownership stake of over 40%, Seagate became VERITAS ' largest stockholder. From June 1999 through November 1999, Seagate 's stock price increased by 25%, while VERITAS ' stock price increased by over 200%. 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.
Determine a buy-out price for the disk drive division of Seagate
The discounted cash flow model provides a way to take into account a company 's future growth predictions (Exhibit XX). Using the scenarios projected by Seagate management and Morgan Stanley, we calculated the future free cash flows for the company, and brought it back to NPV using the company’s weighted average cost of capital (WACC). The WACC calculated uses information provided in the case, and some market information. We came to 14.84% company’s WACC (Exhibit XX).
As sensitive case, we weight the three scenarios with different weight. Seagate performs better than average even with their low profit margin average. For this reason, we averaged the NPV of the down case at 20%, the base case at 50%, and the upside case at 30% to arrive at a LBO price. After
Group 5
Heng Qiao
Eduardo Pereira
Wei Wang
Yanan Pei
Introduction of the companies
Seagate Technology, Inc. is one of the world’s largest manufacturers of computer disk drives and related data storage devices with approximately $6.5 billion in annual revenues. In early November 1999, Luczo, president and CEO of Seagate considered a restructuring proposal with Silver Lake, a successful private equity firm that is specified in technology business investing.
In May 1999, Seagate sold its Network & Storage Management Group to VERITAS Software Corporation, an independent manufacturer of storage management systems, for approximately 155 million shares of VERITAS stock. With an ownership stake of over 40%, Seagate became VERITAS ' largest stockholder. From June 1999 through November 1999, Seagate 's stock price increased by 25%, while VERITAS ' stock price increased by over 200%. 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.
Determine a buy-out price for the disk drive division of Seagate
The discounted cash flow model provides a way to take into account a company 's future growth predictions (Exhibit XX). Using the scenarios projected by Seagate management and Morgan Stanley, we calculated the future free cash flows for the company, and brought it back to NPV using the company’s weighted average cost of capital (WACC). The WACC calculated uses information provided in the case, and some market information. We came to 14.84% company’s WACC (Exhibit XX).
As sensitive case, we weight the three scenarios with different weight. Seagate performs better than average even with their low profit margin average. For this reason, we averaged the NPV of the down case at 20%, the base case at 50%, and the upside case at 30% to arrive at a LBO price. After