WSJ Article:March 29, 2000
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Seagate Will Be Taken Private
In Complex $17.5 Billion Deal
An INTERACTIVE JOURNAL News Roundup
Seagate Technology Inc., Veritas Software Corp., and an investor group announced a $17.5 billion transaction late Wednesday that will result in the top disk-drive maker being taken private.
Seagate shareholders will receive about $15.5 billion in cash and Veritas stock. Veritas will retain Seagate investments -- including Seagate's 33% stake in Veritas -- and some of its cash. Meanwhile, the investor group will acquire Seagate's disk-drive operations for $2 billion in cash.
The companies said Silver Lake Partners led the transaction and organized the investor group, which also includes August Capital, Integral Capital Partners, Chase Capital Partners, and Goldman Sachs & Co.
In the transaction, Veritas, a maker of disk-drive-management software for large corporate networks, will swap 109.3 million of its shares for the approximately 128 million of its shares currently held by Seagate, a stake that amounts to 33% of Veritas, and also offer certain securities and cash.
When all is said and done, shareholders of Seagate, of Scotts Valley, Calif., will receive 0.467 share of Veritas and about $5 in cash for each share of Seagate. The companies said this assumed a $500 million cash retention by Veritas Software, and Seagate's anticipated cash position at closing.
The companies valued the total transaction at $20 billion; based on Wednesday's closing price of Veritas stock and Seagate's 215.9 million shares outstanding, it would be valued at about $17.5 billion in cash and stock.
Veritas, of Mountain View, Calif., said the transaction will add to its earnings per share by decreasing total shares outstanding and by earning interest on any cash retained from the transaction. The companies said the transaction will unlock the value of Seagate's assets on a tax-efficient basis for the benefit of its stockholders.
The companies said the transaction has been structured so that the issuance of the Veritas shares should be tax-free to Seagate stockholders.
"This transaction represents an unlocking of the value of Seagate for its stockholders," Lawrence Perlman, Seagate's co-chairman, said in a prepared statement. "Our stockholders will receive both the value of Veritas Software stock in a tax-efficient manner as well as significant value for Seagate's core business."
Surging Stock
Veritas has caught the eye of tech-infatuated investors in recent months, with its shares surging nearly sixfold since the fall. As a result, those shares were worth about $18 billion Wednesday, more than Seagate's total value of about $15 billion.
The situation caused Seagate shareholders to press its management to distribute some or all of those shares. But both Seagate and its shareholders would have faced stiff tax penalties if it had done so. What's more, such a sale would have suppressed the value of Veritas shares by flooding the market with them.
By taking Seagate's disk-drive operations private, the deal also buffers the company from the pressures associated with being a public company in one of the tech world's most cutthroat markets. One of Seagate's biggest competitors -- the disk-drive operations of International Business Machines Corp. -- has some of the benefits of a private company, since its results are folded into the much larger results of IBM.
"I believe that becoming a private company will allow us to focus on strengthening our core storage business," Steve Luczo, Seagate's president and chief executive officer, said in a prepared statement.
Seagate's stake in Veritas dates back to the fall of 1998, when Veritas agreed to acquire about half of Seagate's software subsidiary in a stock swap. Veritas was formed in 1989 from the remnants of Tolerant Systems Inc., a failed maker of large corporate computers. Its first contract was with AT&T Corp. to develop storage-management software for the Unix operating system.
Seagate Rode PC Boom
Seagate, meanwhile, was founded by computing legend Al Shugart, who was closely involved in the development of the first disk drive -- for mainframe computers -- at IBM during the 1950s and 1960s. In 1979, Mr. Shugart and several associates created Seagate to build small disk drives for the new class of personal computers. The company became a key supplier of IBM as the PC boom set in; in 1995, after riding out waves of brutal cost-cutting, Seagate acquired Conner Peripherals and became the world's biggest disk-drive maker.
In the late 1990s, the company once again battled competition, inventory gluts and pricing pressures in the brutal industry. In July 1998, the company's board forced Mr. Shugart out as CEO.
The companies said the transaction is expected to close in the third quarter of 2000, subject to the approval of Veritas and Seagate stockholders, funding of the debt commitments and clearance by the U.S. Securities and Exchange Commission, as well as clearance under antitrust laws.
Morgan Stanley Dean Witter acted as financial advisor to Seagate's board for the deal, while Credit Suisse First Boston acted as financial advisor to Veritas's board.
--Lee Gomes and Don Clark of The Wall Street Journal contributed to this article.
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