Under the terms of a $20 billion agreement unveiled after market close Thursday, the storage technology company would sell its 33 percent stake of Veritas Software back to Veritas while a private investment group led by Silver Lake Partners would buy Seagate's operations for cash.
The parties valued the deal at $20 billion, or roughly $77.50 per Seagate share, a 26 percent premium to Seagate's average price over the last 30 days.
That calculation includes $5 from the Silver Lake group and 0.467 Veritas shares, worth about $72.50 for every Seagate share, as of Wednesday's close. It also assumes Veritas will keep about $500 million cash, although it has the right to up to $750 million in retained cash.
Thursday's deal requires Silver Lake's group to pay about $2 billion cash for Seagate's core operations.
Veritas will issue a total of about 116 million shares to recover 128 million shares from Seagate as well as the aforementioned cash and Seagate's holdings of Gadzoox Networks, SanDisk, CVC and Dragon Systems, which was acquired by Lernout & Hauspie.
The deal increases Veritas' earnings per share because the company will have about 12 million fewer shares outstanding, executives said. Veritas executives, who also noted that the cash being received will generate interest income, estimated a 10 percent increase in earnings per share this year and 7.5 percent in 2001 stemming from the Seagate transaction.
"We think the deal makes great sense for both Veritas and its shareholders," said Mark Leslie, chairman and CEO of Veritas. Seagate executives looked forward to going private. The company will be able to make investments that don't pay off immediately because it won't have to "pay the penalty of 'Did the Street like what it does to that quarter's P&L?' " said Stephen Luczo, president and CEO of Seagate.
Private investors have longer-term views, Luczo said. "It gives us a lot of flexibility in moving the company ahead," he said during an conference call with analysts. "We can do it with a time horizon that's probably better suited to the industry we're in."
Wall Street analysts on the call generally praised the proposed buyout. But news of the transaction prompted immediate criticism from some shareholders.
It's kind of insulting for management to realise 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 money manager Steve Shapiro, a money manager at New York-based Intrepid Capital Management, which owns Seagate stock.
In an interview with Reuters, Luczo -- a former investment banker who joined Seagate in 1993 -- defended the board's and management's decision. "I think the value the shareholders are getting is pretty spectacular," he said. "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."
Silver Lake's buyout partners include Seagate management; GS Capital, a Goldman Sachs unit; August Capital; Texas Pacific Group; Integral Capital; and Chase Capital Partners.
After stagnating for much of last year, shares of Seagate have risen recently along with disk drive stocks in general. The stock rose as high as 74 in after-hours activity. It closed Wednesday's regular trading at 62 15/16.
-- Reuters contributed to this report.
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