Seagate Lbo

Satisfactory Essays

In May 1999, Seagate sold its software business to VERITAS Corp in a stock transaction. By undertaking this, Seagate became the largest VERITAS shareholder with over 40% stake. Small numbers of VERITAS’ outstanding shares, both in absolute terms and relative to the Seagate, created relative mispricing due to the increase in demand and decrease in supply. VERITAS' stock price appreciated dramatically but Seagate's stock price didn’t; as the result the market value of Seagate's VERITAS stake exceeded the total market value of Seagate.
When the issues with Seagate’s low stock price arose, management tried several options to remedy the problem. Initially, they sold some VERITAS shares they held and then bought back some of their own stock in …show more content…

The risk inherent in this trade is that the VERITS’ value declines before it turns positive, or if the arbitrageur is forced to liquidate at the wrong time. The trade with an intended large profit could turn into a large loss.
As a result of this LBO, Seagate and its shareholders are the obvious winners as they were saved from tax liabilities. VERITAS and Silver Lake Partners are also benefactors of this transaction. Silver Lake stands to make a huge profit from this restructuring and VERITAS stakeholders receive an attractive gain from the buyout and allow them to own a sizable stake. The ultimate looser from this transaction is the government because of the huge lost in tax

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