Hi Tom and Rob,
I'm still that "good natured guy"; if not, I would be using far harsher words to describe the shamelessness of "these guys", who will otherwise remain nameless.
Below is the DJ article on STX's debut. The last two paragraphs are the most interesting, also reproduced here:
Seagate itself sold 24 million shares in the IPO, and plans to use $147 million of the $288 million in proceeds to pay off deferred compensation to its management. The deferred compensation plan was set up at the time of the buyout.
The remaining 48.5 million shares were sold by the buyout funds, for proceeds of about $582 million. And, Seagate, just prior to the offering, planned to make a return of capital distribution of $261 million to its existing shareholders. That's $843 million to the buyout investors around the time of the IPO.
The headline on the Reuters story made it appear that the company itself was getting over $800m from the offering. They didn't even mention in the story I read that the shareholders were selling more stock than the company itself. Or that more than half of the proceeds to the company itself would then be used to pay "deferred compensation" to management (I'm sure that they must have worked for $1/year like Iacocca did; right)! Or the "return of capital distribution" of $261m to the existing shareholders prior to the offering!
How anyone could buy this stock is beyond me. They got their $12 apparently. At least it opened there, never traded above it, according to Yahoo. "These people" are truly, well, remarkable.
[P.S. I had the tax rate number wrong on my previous post, I recalled the article incorrectly. Barrons said their overall tax rate was 20%, the 3% number was just how some of their revenue was taxed not all of it. The main point that their earnings are not as high as they look remains, though, as their tax holidays will expire over the next few years, and the tax rate will increase.]
Seagate Returns to Market in Sluggish Debut
Wednesday December 11, 10:44 am ET
By Raymond Hennessey
NEW YORK -- Hard-disk maker Seagate Technology Holdings made its return to the public markets
Wednesday, though its shares traded lower in their debut.
Seagate, which two years ago was the subject of the largest technology buyout in a complicated
series of transactions that stemmed largely from the technology bubble, saw its new shares open on
the New York Stock Exchange at $11.50 each, 4% below their $12 offering price.
In midmorning trading, Seagate shares were down 55 cents at $11.45.
The initial public offering of 72.5 million shares, led by Morgan Stanley ( MWD) and Citigroup Inc.'s
Salomon Smith Barney, priced below price expectations of $13 to $15 a share -- a sign of continued
weak demand for most new stock issues.
There were signs that demand was weak. Last week, when preliminary allocations were issued by
underwriters, many investors were told they would receive all the stock they had requested. In stronger
issues, investors typically don't get their full request.
"This is a tough environment for this kind of business," said Sal Morreale, who tracks IPOs for Cantor
Fitzgerald L.P. in Los Angeles.
But the pricing was actually stronger than some analysts had suggested. Coming into the week, some
potential investors and IPO analysts had said there was chatter the offering could price as low as $10 a
share. Underwriters, though, strongly talked down that talk.
Seagate, based in the Cayman Islands, is unusual in the IPO market because of its size. In its fiscal
first quarter ended Sept. 27, revenue grew to $1.58 billion, above the $1.29 billion in the comparable
period a year earlier. Net income rose to $110 million from $34 million over those periods.
But Seagate was also unusual for its history. In 1998, Seagate was a publicly traded and had two
businesses: hard disk drives and data-storage software. Wanting to concentrate on the drives, it
eventually agreed to sell the software unit to Veritas Software Corp. (NasdaqNM:VRTS - News) .
Veritas agreed to buy the Seagate business for $1.6 billion in mostly stock -- stock which at the time
was benefitting from the high valuations afforded many technology companies. After the deal,
Seagate owned a third of Veritas stock.
This quickly became a valuable stake -- so valuable that it was worth just about what Seagate was
valued. Yet, Seagate had a problem: It couldn't transfer that value to its own shareholders because a
spinoff wouldn't be tax free.
While a stock distribution is taxable, a merger isn't necessarily so. So Seagate approached Veritas
about what's known as a "downstream" merger, where Veritas would agree to buy Seagate but take
possession of just Veritas's stock in essentially a large buyback, though at a discount.
For the deal to work for Seagate shareholders, who would ultimately get Veritas stock in the deal, the
Seagate hard-disk business would have to be taken private. In November 2000, private equity firm
Silver Lake Partners engineered a $1.7 billion buyout, the largest such deal for a technology
company.
Based on the 426.5 million shares outstanding after the offering, the IPO valued the company at
about three-times that buyout figure.
There have been some grumblings about the quick payoff for the buyout funds, which in addition to
Silver Lake, include Texas Pacific Group, August Capital, J.P. Morgan Chase & Co. and Goldman
Sachs Group Inc. (NYSE:GS - News) .
Seagate itself sold 24 million shares in the IPO, and plans to use $147 million of the $288 million in
proceeds to pay off deferred compensation to its management. The deferred compensation plan was
set up at the time of the buyout.
The remaining 48.5 million shares were sold by the buyout funds, for proceeds of about $582 million.
And, Seagate, just prior to the offering, planned to make a return of capital distribution of $261 million
to its existing shareholders. That's $843 million to the buyout investors around the time of the IPO.
- Raymond Hennessey, Dow Jones Newswires; 201-938-5354; raymond.hennessey@ dowjones.com
Dow Jones Newswires
12-11-02 1044ET |
