Study On The Seagate Technology Buyout Finance Essay - Free Essay Example

Sample details Pages: 10 Words: 2858 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Motivation and structure of the transaction. In early 1999, Seagate was planning on major restructuring proposal with the private equity firm, Silver Lake partners L.P. The plan implied a leveraged buyout of Seagates disk drive operations, followed by the tax free acquisition of Seagates remaining assets by VERITAS Software Corporation. Don’t waste time! Our writers will create an original "Study On The Seagate Technology Buyout Finance Essay" essay for you Create order The choice for this two step transaction was mainly a result of Seagates 40 percent ownership of VERITASs common stock. In the previous year the share price of VERITAS increased significantly and the market value of Seagates share in VERITAS had come to substantially exceed Seagates entire market capitalization. The value gap was a result of the perceived tax liability by the market if Seagate were to sell its VERITAS stake and Seagates core disk drive operations were not fully valued in the market due to increased interest in Internet firms and cheaper data storage providers. The two-step transaction was thus believed by Seagates management to generate significant wealth gains for its shareholders. Before making their decision Seagates has to consider some alternatives to the previously described restructuring in order to address its low stock price. The company could sell the company as a whole, repurchase its own stock or sell off part of the VERITAS stake, or undertake a tax-f ree spin-off of either the disk drive business or its stake in VERITAS. We address each of these alternatives next. Seagate could choose to sell itself to other companies that may be interested. A merger or acquisition, in this case, could be either horizontal or vertical. Whereas a horizontal merger or acquisition could be beneficial for Seagate, because of the even higher market in the very competitive disk drive market, a vertical merger would be less successful as the company is already vertically integrated. However, it would be ideal for Seagate to be acquired by VERITAS as it holds 40 percent of its shares. But VERITAS was not interested in entering into the disk drive industry as management believed this was to far away from their core software business. A second alternative for the company is to sell its VERITAS stock or repurchase its own stock partially in the open market, however. However both actions proved to be ineffective. First Seagates ability to sell of VERI TAS shares was limited by a prior agreement made with VERITAS. Even if they could sell off the entire VERITAS stake, it still seems an undesirable outcome since the transactions would be taxable on both the corporate as personal accounts. Second when the company performed a repurchase it had little impact on its stock price. A tax free spin-off would imply that Seagate spins off one of its business units, the core disk drive business or the VERITAS stake as an entirely new company. However the internal revenue code, as part of the US statuary tax law, requires that both the distributing corporation and the controlled corporation must be engaged immediately after the distribution in an actively conducted trade or business for a five-year period. Furthermore it also states that the corporate divisions lacking a business purpose can not be accomplished tax free (IRS, 2003). Clearly the VERITAS stake corporation will not satisfy these conditions and thus a tax free spin-off is unlike ly. Besides the distribution must be the last resort for solving the business problem. In other words, it must be established that the business problem cannot be solved otherwise. This condition also does not hold since, as we will later see, the proposed two step transaction remains as a valid alternative. After reviewing these alternatives the proposed two step transaction seems to be baneful, mostly due to its low tax nature. As indicated in the case the stock-for-stock swap qualifies as a reorganization under the Internal Revenue Code, thus avoiding the tax implications as a swap. VERITAS will swap 109,330,300 shares for 128,059,966 shares previously owned by Seagate, and the tax advantage will be Huge as no personal or corporate taxes have to be paid on the transaction. Furthermore the decrease in total outstanding shares associated with the deal will cause earnings per share to rise, cetris paribus. In total this would be in the benefits of the VERITAS shareholders, enablin g the two stage transaction to be pursued on their behalf. Seagates shareholders also benefit from the potential restructuring program. First they will receive 109,330,300 shares that have experienced a price increase of 200 percent after the half year that followed VERITAS acquisition of Seagates Network and Storage group. Compared to the 25 percent increase over the same period of its own shares this is a significant difference. Furthermore they will receive an additional amount generated from the sale of Seagates disk drive manufacturing assets (including $765m of cash) to the Suez Acquisition Company. The benefits to be received here, and thus also the potential benefits of Silver lake Partners L.P. are thus for the main part determined by this price, which was not determined yet. Seagates employees will also benefit from the two step transaction as their incentive to perform increases significantly when the new Suez Acquisition Company is no longer tight to VERITAS performan ce. Corporate governance is now considerable tighter than in the old situation. A sincere loser of the reorganization is the government that could have gained more in taxes if one of the pre-described alternatives were chosen. Levering the buyout There are a number of benefits of leveraged buy outs. Business efficiency improvements, increased interest tax shields, change of management or improved management incentives and higher firm value are the most important possible effects. In the case Seagate an increase of the stock price was the most important target of the leveraged buyout. Before the leverage buyout Seagates stock price was more and more tied to VERITAS stock price. The performance of Seagates main business was a subordinated parameter. The trial to increase the stock price by means of selling VERITAS shares and buy own shares in the open market did not lead to the aimed target. Therefore a leveraged buyout was a possibility to lose the stock price from the performance of VERITAS. Besides of this main purpose to disconnect the stock price development from VERITAS also other positive effects of leveraged buyout could be realized, as the improvement of the market position of Seagate from a strategic and long-ter m point of view. As a consequence a higher probability to secure a positive stock price development after being on the stock market again can be attained. Another positive aspect of leveraged buyouts are taxes that can be saved through higher debts and interest that is tax-deductible. Although it should be considered that interest cannot be deducted unlimited because of interest barrier rules or earnings stripping rules. Therefore the interest only can be deducted to a certain extent, depending on the debt-to-equity ratio. There are specific regulations that differ from country to country. In case of cross-border leveraged buyouts the situation should be analyzed separately. Within the EU there is no different treatment in cross-border situations because of the freedom of establishment and the freedom of capital of the EC Treaty. A decisive argument of leveraged buyouts is the possibility that enterprises that were poorly managed before their acquisition can undergo valuable c orporate reformation when they become private. An important change in the corporate structure is often the modification and replacement of the management staff or improved management incentives. In the Seagate case Silver Lake was convinced about the abilities of the management team. Silver Lake argued that the members of the management team had over ten years of experience in the disk drive industry and underlined that it was an important condition of the deal that the six top managers were taken over. In many articles it is argued differently as a restructuring without modification of management staff is much harder and there is a stronger opposition against many unpleasant but necessary changes. As incentives the management had to convert a portion of their Seagate equity into new equity and also got some deferred compensation. The rejection of unnecessary company sectors as well as the reduction of excessive expenditures also is an important factor for the success of the deal. In the leveraged buyout market stable and predictable cash flows and significant tangible assets which can be provided as security for bank loans are positive preconditions. These are features that make an enterprise for private equity firms interesting to invest. In the 1980s and early 1990s industrial companies were strongly favored and technology business was avoided. This has changed as the technology sector has become more and more important and in the last years this sector has become increasingly more interesting for Private Equity investments (von Nell-Breuning/2010). The disk drive industry as part of the technology sector is distanced by heavy price competition, short product life cycles which are often no longer than six months and high expenditures on RD. These are features that make buyouts very risky. It makes it difficult to predict cash flows, which plays a significant role for the success of a leveraged buyout. Nevertheless Silver Lake was convinced that in gen eral the disk drive industry market development would be extremely positive and that the disk drives would be the key technological component in hardware products. It also should be taken into account that Seagate had a number of characteristics that were from a positive nature for a leveraged buyout like vertical integration for a better competitive position on the market. But also high RD while using up cash is a positive aspect to prevent market entry of smaller, less well-capitalized competitors. Another advantage of Seagate was the relatively high equity ratio compared with the technological industry. The equity ratio of Seagate was 26.6 per cent in June 1997, it was 29.6 per cent in June 1998 and in June 1999 the equity ratio constituted 23.9 per cent. The equity ratio of its competitors were lower, f.ex. the competitor Quantum HDD only had an equity ratio from about 13.5 per cent. The average equity ratio of mature industries is between 20 and 25 per cent depending on the country. Capital Structure In order to assess the capital structure of the deal and in essence the amount of debt the Luczo and the buyout team should take it is necessary to estimate the firm value. Two model are being considered for this task. The first one is the relative valuation model. The rationale for relative valuation stems from the notion that the intrinsic value of an asset is difficult to estimate. Its value can be measured by the price the market is willing to pay for its assets, based upon its characteristics. The second model being considered is the DCF model. When comparing relative valuation with DCF, one advantage over DCF is the reflection of market perceptions on the value of the company. Thus, in a perfect market, the perceptions of future prospects are already reflected in the stock price. It requires less information than DCF models and is therefore less prone to estimation errors. In addition, managers are often judged on a relative basis and relative valuation might therefore match their needs and horizons. Markets are assumed to make mistakes when pricing assets across time. DCF valuations detach themselves from market valuations and assess the fundamentals underlying the firm and its growth perspectives. Relative valuation leads to a reasonable estimate when there are many comparable assets that are priced in the market and a common variable can be applied to standardize the prices. Although the case offers some information on competitors we deem the data to be insufficient. Even more, relative valuation works best for investors that usually have relatively short investment horizons as it is rather difficult or impossible for the market to perceive long-term growth perspectives. In general a private equity investment(PE) spans on a 5 to 7 years time line meaning the PE investor has a medium to long-term investment horizon. More confidence in reasonable firm value estimation is thus assigned to the DCF valuation. The fundamentals of a company provide a pruden t basis for estimations. Assumptions for the estimations are transparent while these are rather not in the case of relative valuation. A DCF valuation can be applied to long-time horizons and is thus more applicable for investors with long-term investment perspectives. In addition, a fundamental approach might work as a catalyst that moves the price in the market towards the real value of the assets. Silver Lake Partners L.P., as the bidder for the controlling stake of the company is interested in deriving the firm value, meaning the value of the equity stake in association with debt. Cash flows coming from operating activities would therefore need to be estimated. A first step concludes in the calculation of free cash flows to firm (FCFF). The FCFF is computed based on the following assumption: The company management provides three different projections for the buyout team: The Base Case, The Upside case and The Downside Case, each differing in EBITA and Revenues values. C apital expenditures and Depreciation are to remain the same in all three cases. The values used are provided in the operating performance projections table of Seagate. The working capital(WC) is mentioned in the case as being historically equal to 0 for the industry so the change in WC is to be ignored. According to this values the FCFF can be computed. After total cash flow is calculated, it is brought back to NPV using the companys weighted average cost of capital (WACC). The WACC, which is defined by the relative cost of the companys debt and equity is also viewed as the required rate of return for the company and its investors to compensate them for the inherent risks of ownership and realization risk for projected cash flows. The value for the risk free rate and the market risk premium have been set as given by Damodaran(2010) as 3.20% and 2.05% respectively. The beta of the company is supplied by the case as 1.2. Thus we come to the value of 6% for the WACC. Based on the va lues of the FCFF and WACC computed we can now asses the present value of the firm in the years to come. By summing up this values for the required time horizon we get to the firm values for the three cases Figure 1 Firm value analysis As it can be noticed the firm values for the cases register important differences. The Upside case stands out. Comparable to this the Downside Case has a much smaller difference. In order to better account for the possibility of worse than expected, but more importantly, for better than expected performance in the company we consider that the average of the three values should be used as the firm value and as the price the buyout team should pay meaning US$2.224 billion. We have determined a purchase price of $2.22 billion that Silver Lake Partners will pay to acquire the operations of Seagate. This will be a leveraged buyout that includes two different equity sources and two different debt sources. Our proposed capital structure will consist of 79% percent equity and 21% percent debt. This structure was chosen based on the BBB three-year median rates as referenced in the case (Exhibit 11). The EBIT Interest Coverage ratio set the median value over 1997 to 1999 of 3.9x. In order to get the highest value for the firm when deciding to sell it, the PE firm will try to maintain its rating or even to improve it so it makes sense to consider the BBB value as appropriate. Even more lower rating will also mean higher interest rates for its debt. Using this value and the EBIT values provided for the case we can compute the amount of interest that the firm can afford to pay every year. It can be noticed in Exhibit 1 that the lowest value for EBIT is predicted in year 2000 so it makes sense to consider this value as a benchmark as the following years the performance is expected to improve. Starting from amount of interest that the firm can afford to pay every year we calculated the value of debt that the firm has to take in order to be required to pay that amount of interest. This adds up to US$468.31 meaning 21% of the price recommended for the deal. By comparing this result with the values provided in Exhibit 11 from the case it can be noticed that the firm will remain under BBB rating. The remaining 79% is to be provided by the buyout team in form of equity. It should also be considered that Silver Lake Partners L.P. will receive US$765 million by acquiring Seagate, funds that can be used as equity for the deal. Figure 2 level of debt analysis In order to better assess the impact of the three scenarios on the capital structure of the deal we also used the values computed under The Base Case, The Upside Case and The Downside Case. Again it can be noticed that the better performance predictions stand out. This is based on the possibility that in the latter years of the investment the firm will perform over the expectations even though 2000 is perceived as the same in all cases.

Intro to Logic - 821 Words

1. The following argument violates some principles of well-crafted arguments: While 1[there is much wickedness in the world,] 2[then there is also much good.] For 3[if there is evil, then there must be good,] since 4[good and evil are relative, like big and small.] And no one will deny that 5[evil exists.] Answer questions ‘a’ to ‘e’ below from the passage above. A) Write a well-crafted version of the argument, replacing the emotionally loaded verbiage with more neutral language. 1. The world has much good and evil. b) Examine each statement and explain the reference to the language and sentences used as to how you could decide whether this argument is valid or invalid. The language used is uniformed and charitable.†¦show more content†¦1. Water is life. 2. Life is a gift. 3. My guitar is a gift. 4. Thus water is my guitar. Answer questions ‘F’ to ‘I’ below from the passage below. Mercy killing is morally permissible only if it promotes a greater amount of happiness for everyone affected than the alternatives do. And mercy killing does promote a greater amount of happiness for everyone affected than the alternatives do. Therefore, mercy killing is morally permissible. f) Use as many examples that may include symbols and letters if necessary to help you to distinguish between formal validity and formal invalidity. Formal validity: 1. If A then B 2. A 3. So B Formal invalidity: 1. If A then B 2. B 3. So, A g) Use letters to write the argument form of the passage above. 1. If B, then A 2. B 3. So, A. H) Construct a counterexample to the argument form above. 1. If mercy killing promotes a greater amount of happiness for persons affected than the alternatives do, then it is morally permissible. 2. Mercy killing does promote a greater amount of happiness for those affect ed than the alternatives do. 3. 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Management labor relations Free Essays

Ladies and gentlemen, our professor dry. Carl Minoan, good morning! As I stand here in front of you, I’m still wondering why the Labor (pertaining to the employees), and the Management (the employers), of the organizations are experiencing conflicts, misunderstanding, issues arising and other things that both parties opposed each other’s beliefs that tend to happen to build a Labor union on a specific organization, weird isn’t? Because I did not experienced those things in my organization even once though I am hearing complaints from my colleagues. I will share something to you, when I was a newbie in the company that I am working with, as an auditor I was able to checked and accessed all the necessary documents of our company, specifically the payroll. We will write a custom essay sample on Management labor relations or any similar topic only for you Order Now I discovered that not all employees were well compensated some are earning below minimum, we doesn’t even have much benefits like health card, leaves more than 5 days, security of tenure, bonuses and allowance etc. But then nobody has the courage and strength to fight over the management to ask for those they believed that they should have been enjoying. I felt self-consciously bothered and concern to my fellow employees, that if they discover the big difference of their salary to those who are newbie, no experience young professionals and a newly grads from respected universities and colleges, they might feel envious and unfair for just earning such wages. Maybe because a lot of them are afraid to lose their Job and might not be able to find a better job because mostly of my co-employees especially those who were at the age of ass’s and above, those in the company for 10 ears and above were not a college graduate and they said they were just lucky that they have their Job for living, though they have a choice to leave the company. We are very few whom I believed lucky to earn and offered to have an aggressive Income. And most of them have a huge debt to the company, because our boss allows them to vale an average of 10,000 for every senior or old employees whom our boss considered them as loyalist, and which everybody thinks that this is the way that the management strategy to make their employee to stay longer. In our company we have our own savings account, in which every payday it is deducted already on our salary and being deposited to our personal account, but we are not allowed to borrow It or get It even In the most In need situation, we are Just allowed to make cash advances to the company, but the approval of the amount of the cash advances that you can borrow to the company really depends on our boss, considering the reason why are you borrowing a money, your position, your years of working in the company, your revises vale and your performance; but if she is angry or not k with you, your request to have a cash advance might be rejected. Yes we have salary Increase, the management every six months review the salary of the employees, and the increase depends to the performance of course, but the big factor for them to Increase your salary is if they like you or not. If they had a bad experience with you even once or even simple mistake you’ve made that they really did not forget, I tell you, just wait ND pray to the government to make a salary increase and that’s the only way for you experience it. Our management was really very smart; most of the time they make the Increase as part of allowance of the employee so that it will not be Included in other employees. Those people who hold a team or position, department heads and supervisors are those lucky that the management is giving importance, and giving what we deserved. And I can definitely say that they would really be a pro management. As I go along and I’m gaining knowledge about Labor Unions, I wish hat my co-employees especially those whom I believed need more than they are getting, for they have a definitely not an easy Job, they should ask help of those strong trade unions outside the organization, to help them to bargain their needs to the company for their own sake and for the benefit of the majority. This company really needs a strong labor union. To the management, if they want to keep their employees welfare, they should give what their employees’ needs because through this the management is not Just helping their employees, but this could play a major ole in the company, the employees will and might be an asset of the company by working so hard because they are getting what they think they deserved to have and this serves as a motivation to the workers. Conflict will be minimized; strikes and boycotting will be prevented. Though we all know that salaries and wages are part of company’s expenses, but employees are also an asset to the company, without them, production and operation will not be possible, every worker are important, every individual in the organization is essential. And as an auditor of the company I could ay that the company is really earning a lot, and these employees should exercise their rights. I could say, even if the labor union does not exist in the company, both the labor and the management should have set a meeting or forum to talk about the goal of both parties, whether for the sake of the company as a whole or as individual, through meetings of their department heads or managers, so that both parties needs and wants for a harmonious relationship and for both parties benefits could meet; or else better seek help to outside labor or trade unions. How to cite Management labor relations, Papers

Effectiveness and Importance of Learning Experience †Free Samples

Question: Discuss about the Effectiveness and Importance of Learning Experience. Answer: From a personal perspective the learning experience was quite informative as it provided me with insights into the role of business research in ensuring that an organization is successful. It also provided me with the opportunity of learning how to conduct research. The experience was not only informative but also intriguing as students got the opportunity to develop and test put new concepts. Personally I found the experience to be quite valuable to any student looking to venture into the business and or research world. Through the different activities conducted, students were able to learn about research work and how to perform research effectively. I also obtained insight into the practice of cloud computing and how it can be helpful to a business. In summary it is logical to conclude that the experience served to enhance the students knowledge and skills on different fields that are integral for business operations this serves to make the students better suited for venturing into the employment sector. Usefulness of the Learning Process One of the most important aspects of any learning process is that they provide the student with knowledge that he can apply in other areas of his life. As indicated in this learning process I got the opportunity to learn about how to conduct research, cloud computing and the importance of research in business. The knowledge obtained from the learning process can be used in a number of ways in different settings. Course- In performing my course work, I would use the knowledge obtained on conducting research and literature review to perform the necessary research needed for my assignments. This will serve to ensure that I deliver quality work that has been proficiently researched. Program- Through the learning process we also got to learn about planning. This knowledge will play a significant role in helping me to develop well thought out programs that can be efficiently followed. Future Career- The knowledge on cloud computing and business research will enable me create highly efficient solution for my future business career. The research skills learnt can also help me with the decision making process. Life generally- Generally through the knowledge and skills obtained from the learning process, I will be able to make better well informed decisions and effectively plan out my activities. Objective Description of Activities in the Learning Process The learning process was based on two key assignments namely1 and 2. The first assignment was a literature review assignments. In this assignment, the student was tasked with the responsibility of discussing a number of different published information on the subject area of cloud computing. Through the literature review, the student got insight into the various aspects of cloud computing, its advantages and disadvantages and its impact on the business sphere. Conducting the literature review also provides with the ability to effectively analyze data from different sources and compile them together in a single paper (Webster, and Watson 2002). This skill is important when making decisions regarding businesses as the decision makers need to be able to skim through information from different sources, identify the important information, group the information based on their level of importance, and make a decision based on a collection of the important information (Webster, and Watson 200 2). Once done with the literature review, the students proceeded to the second part of the learning process which is assignment 2. In assignment 2, students were expected to conduct a research that would investigate the primary advantages and disadvantages of cloud computing for business, the different theories and models of cloud computing and explore the future of cloud computing on business. To achieve this the student needed to develop a business research proposal and learn about the different research skills that they would need to effectively execute the tasks expected of them The second aspect of the learning process entailed identifying the project objectives, developing a scope of the research conducting a literature review of the relevant articles, and developing questioners to collect the relevant data. The students then proceeded to develop a hypothesis, create research design methodology and analyze the findings of the research. Evaluation of Lessons Learnt Through the learning process, I have been able to learn a number of valuable lessons. One of the most important lessons that I have learnt is that research is an integral aspect of any business operation. Through research, organizations are able to effectively evaluate the subject matter and make decisions that are based on facts. This helps to ensure that the decision made by the organization is the most appropriate in the situation. A number of studies have proven that organizations that base their decisions on research work are more successful than those that do not. Through business research, I was also able to learn of the various processes that a person needs to go through when conducting a research. The processes rang from developing the research hypothesis to be investigated, to determining the scope of the investigation, to determining the best data collection method and the various data analysis methods. I learnt that despite its disadvantages, cloud computing is a revoluti onary concept in the business sphere and it is bound to significantly disrupt the way business is conducted (Avram 2014). Through cloud computing, information storage and sharing for business will be significantly improved (Avram 2014). Individuals will also be able to access important company data from any part of the world thereby ensuring that people from different regions in the world can be able to work on the same data. This will help to significantly increase productivity within the business sphere as it removes most of the preexisting barriers to information sharing. In the lesson I also learnt that there exist a number of limitations to business research that a person should consider when conducting the research. Learning Process As already indicated, the primary reason for engaging in assignment one was to provide the student with insight into the world of cloud computing. Engaging in the literature review also served to provide the student with skills of reviewing different sources of material to obtain relevant data. The primary reason for doing the second assignment is to equip the students with sufficient research skills and enable him explore the various advantages and disadvantages of cloud computing in business. Application of the Learning The knowledge obtained from this learning process can be utilized in a number of ways in my future. The knowledge on business research can be utilized in decision making process. As is evident from assignment 2, through the research the organization was able to deduce that even though it has a few challenges, cloud computing has the capacity of increasing organizations productivity. By applying research principles I can ensure that the decisions I make are based on facts and hence have a higher probability of being the right choices. Other than in making decisions, the lessons leant from this learning process can be used in evaluating data. By using the skills obtained in the literature review process, I can be able to easily review different types of data and pick the important elements presented in the different pieces of data. This skill is quite important in analyzing and helps to ensure that a person is able to distinguish irrelevant information from relevant information. Based on the information provided it is logical to conclude that by utilizing the skills obtained from this learning process, I will be able to significantly increase my employability due to the fact that I would be able to work in different fields in the organization. Bibliography Avram, M.G., 2014. Advantages and challenges of adopting cloud computing from an enterprise perspective.Procedia Technology,12, pp.529-534. Webster, J. and Watson, R.T., 2002. Analyzing the past to prepare for the future: Writing a literature review.MIS quarterly, pp.xiii-xxiii.