Aus,
RE: Seagate and Sandisk, once again
I didn't understand the math about Seagate getting an average of %40/share for their Sandisk stock in the March quarter either. I went back to the proxy statement this morning, read a few pages and came across the following two excerpts:
<< Under the terms of the Merger Agreement, immediately following and
contingent upon the closing of the Stock Purchase, Merger Sub will merge with
and into Seagate and each outstanding share of Seagate common stock (other than
certain shares to be cancelled) will be converted into the right to receive a
proportionate share of the merger consideration, which will consist of (i)
109,330,300 shares of VERITAS common stock, (ii) an additional variable number
of shares of VERITAS common stock which have a market value shortly before the
effective time of the Merger that is intended to be approximately equivalent to
(A) a negotiated discount to the market value of Seagate's investments in
Gadzoox Networks, SanDisk Corporation, Veeco Instruments and Lernout & Hauspie
shortly before the effective time of the Merger, and (B) the amount (the
"Retained Cash Amount") by which VERITAS elects to reduce the cash portion of
the Merger consideration, up to a maximum of $750 million, (iii) an amount of
cash equal to Seagate's cash at the effective time of the Merger, which will
include the net proceeds received and retained by Seagate in connection with the
Stock Purchase, and will be reduced by the Retained Cash Amount, and (iv) the
right to receive the value of certain tax refunds received and credits utilized
by VERITAS that are attributable to Seagate and relate to periods ending on or
prior to the effective time of the Merger. As a result of the Merger, Seagate
will become a wholly owned subsidiary of VERITAS, and VERITAS will indirectly
acquire all of the designated assets described above that are not purchased by
SAC in connection with the Stock Purchase.>>
[clip; then in the Q&A section, the following:]
<< You should note that it is possible, though unlikely, that VERITAS could end
up having to issue more than the 128,059,966 shares currently held by
Seagate. However, this would only happen if the market prices of Seagate's
investment securities rose significantly while the market price of VERITAS
common stock fell significantly. Although VERITAS would have to offer more
shares than anticipated in this unlikely circumstance, VERITAS would
nonetheless own the appreciated investment securities that caused VERITAS to
issue more shares. >>
In other words, it is in Veritas's and Seagate's interest that their holdings be less, not more. Yes, they would have the appreciated securities, but what appreciates also deflates. They would rather have the hard cash in hand than stock that they would have to sell, and perhaps deflate the price when doing so. It is in their interest to have as small stakes in any stock as possible to remove risk from their deal, and to allow VRTS to issue as little stock as possible. Sandisk's parabolic rise, I think, actually threatened the deal by introducing an unwanted and unnecessary speculative element into it.
That at least is my take on it. It is incredibly complicated, and I can't claim to actually understand everything about it.
Sam |
