|
Seagate set to go private
|
 |
March 29, 2000: 7:13 p.m. ET
Disk drive maker to shed $18 billion of Veritas Software stock in two-stage plan
By Staff Writer David Kleinbard
|
NEW YORK (CNNfn) - Computer disk drive and tape drive maker Seagate Technology Inc. said it will become a private company in a two-stage transaction worth about $20 billion.
In the first stage, Veritas Software will acquire about $18 billion worth of Veritas common stock Seagate now holds, in addition to certain securities and cash. In the second stage, an investor group led by Silver Lake Partners and Texas Pacific Group, two private equity investment firms, will acquire Seagate's operating businesses for about $2 billion in cash.
Seagate, based in Scotts Valley, Calif., acquired about 155.6 million shares of Veritas (VRTS: Research, Estimates) common stock when it sold its Software Network and Storage Management Group to Veritas in May 1999. Seagate (SEG: Research, Estimates) has since reduced that stake to 128 million shares, representing a one-third stake in the Mountain View, Calif.-based maker of data storage management software.
That Veritas stock was worth about $2.7 billion at the time the transaction closed last year. Veritas' stock price has soared since then, causing the value of Seagate's stake in Veritas to be worth nine times more than Seagate's core tape drive and disk drive businesses.
 Seagate, based in Scotts Valley, Calif., closed Wednesday down 5-7/16 at 62-3/4. Under the transaction announced Wednesday, Seagate stockholders would receive 0.467 share of Veritas common stock and about $5 per share in cash, a combination worth $71.55 based on Wednesday's closing price for Veritas of 142-1/2.
In after-hours trading, Veritas shares jumped 15-1/2 to 158, while Seagate's stock gained 6-13/16 to 75.
For Veritas, the transaction will increase the amount of its stock in the public float and prevent its stock from falling into unfriendly hands if Seagate were to be acquired. In addition, it will decrease the amount of Veritas stock outstanding because Veritas is going to issue 109 million of its shares in exchange for the 128 million Seagate now owns. Veritas also will acquire about $1 billion of cash and investments now held by Seagate.
Mark Leslie, chairman and CEO of Veritas, said on a conference call Wednesday that the transaction will increase the company's earnings per share by about 7.5 percent in 2001.
"This transaction represents an unlocking of the value of Seagate for its stockholders," said Lawrence Perlman, co-chairman of Seagate. "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."
The transaction, which is expected to close in the third quarter of this year, needs to be approved by Veritas and Seagate stockholders. Silver Lake, based in Menlo Park, Calif., is a $2.3 billion private equity fund focused on technology. Texas Pacific Group is a private equity investment firm with more than $7 billion in capital.
Veritas makes software to help large organizations rapidly store and access important information stored on their networked computer systems. The growth of the Internet and Web-based commerce has caused demand for Veritas' data storage software to mushroom. The company's fourth-quarter revenue rose 80 percent to $226.2 million, while its net income for the period rose 112 percent to $50.7 million. The company's operating margins are a generous 34 percent.
Over the past 52 weeks, Veritas stock soared to a high of 174 from a low of 13-1/2, a 13-fold gain. At Wednesday's closing price, Veritas stock sells for more than 400 times its 1999 earnings per share, a valuation considered stratospheric by traditional standards.
The rapid rise in the value of Seagate's 33 percent stake in Veritas made Seagate's stock into a "play" on Veritas, and the two stocks had started to move in lockstep.
Seagate's disk and tape drive businesses are far more cyclical and price-competitive than Veritas' storage software business. Seagate shocked the disk drive industry in July 1998 by ousting its chairman and founder, Al Shugart. Shugart started Seagate in 1979 with just $10,000, turning it into a $6.8 billion company by the time of his departure. 
|
|
|
Seagate
Veritas
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
