Seagate to Go Private; Veritas Stake to Be Sold
Seagate Technology Inc. announced a $20-billion transaction Wednesday that would take the world’s largest computer disk-drive maker private and sell its 33% stake in fast-growing Veritas Software Inc. back to Veritas.
Under the complex deal, Veritas, a Mountain View, Calif., maker of software that stores and manages digital information, would acquire Seagate for cash and stock for about $18 billion, then sell Seagate’s disk-drive, digital-tape and other businesses to an investor group that includes Seagate management for $2 billion in cash.
The surprise deal would create the biggest private high-tech firm in Silicon Valley in what is believed to be the first instance of such a large and well-established technology company being taken private.
Silver Lake Partners, a venture capital firm that is leading the buyout of the disk-drive business, would get $800 million in cash out of the deal. News of the transaction prompted immediate criticism from some shareholders.
“It’s kind of insulting for management to realize a little bit more than where Seagate is trading, but not nearly what they think it’s worth, and then for them to tell you that you should be happy,” said Steve Shapiro, a money manager at New York-based Intrepid Capital Management, which owns Seagate stock.
In an interview, Seagate Chief Executive Stephen Luczo, a former investment banker who joined Seagate in 1993, defended the decision of the board and management: “I think the value the shareholders are getting is pretty spectacular. We pursued lots of alternatives and there was a market test to see if there was another group or companies that wanted to buy all or the pieces and there was none.”
Seagate said the deal values its shares at $77.50 apiece based on Tuesday’s closing price. That represents a 26% premium to Seagate’s average stock price over the past 30 trading days, and an 87% over the past six months, the company said.
Seagate shares rose $5.81 to $74 in after-hours trading. Veritas shares fell $12.44, to $142.50 in Nasdaq trading. The deal was announced after the markets closed.
The arrangement would allow Veritas to reclaim the 128 million of its shares that are currently owned by Seagate, while paying out only 109.3 million new shares, plus cash, for Seagate.
Veritas said the deal should add to its earnings-per-share figures because the amount of outstanding stock will be reduced.
Seagate said its stockholders will receive 0.467 Veritas share for each Seagate share, plus $5 in cash. The deal is expected to close in the third quarter of this year.
Silver Lake is a private $2.3-billion equity investment firm led by well-known Silicon Valley venture capitalist Roger McNamee. It focuses on large investments in technology and growth companies. Its partners in the Seagate deal include Texas Pacific Group, headed by financier David Bonderman, who has been buying high-tech businesses that produce commodity chips and other devices.
Seagate, a Silicon Valley pioneer, has had a tumultuous time in the last two years. In July 1998, the company fired its outspoken and brash but beloved founder, Al Shugart, replacing him with Luczo.
The stock also has been on a roller coaster ride, as cheap PCs wreaked havoc in the market for computer disk drives. And in recent months, there has been rampant speculation about how Seagate would boost shareholder value and what it would do with its 33% stake of highflying Veritas.
“This allows us to focus entirely on the disk drive business instead of having our fortunes determined by what Veritas stock is doing,” Luczo said in an interview.
