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Seagate MBOs HDD business at rock-bottom price

Group dismembered in $20 billion deal

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Seagate is to bow out as a corporate entity by divesting itself of all non-operating businesses and offloading its disk drive division in a deal valued at $20.4 billion. The HDD business is going in an MBO for a paltry $1.2 billion, even though it's valued at more than twice that amount. The Seagate HDD business will now, as the only remnant of the former colossus of the storage sector, be in private hands - a move those close to the deal say will protect it from the vagaries of the investment community. The last couple of years have been tough on the low-end storage sector and this has taken its toll on Seagate's share price. The MBO is being backed by three venture capital firms - Silver Lake, Integral Capital Partners, and Texas Pacific Group - and gives Seagate management control of the disk drive and digital tape divisions. The price tag of $2 billion on the MBO is offset thanks to $800 million working capital sweetener. On an earnings per share basis, analysts reckon the division to be worth something in the region of $3 billion. Last year Seagate made $1.2 billion profit off revenues of $6.8 billion. In Vitro Veritas The rest of the mega-deal centres on Veritas' involvement in Seagate. Veritas bought Seagate's software business in a stock-swap deal last year, it left Seagate holding a 33 per cent stake in Veritas. Seagate shareholders will receive $1.2 billion in cash and $19.2 billion in Veritas stock. In return, Veritas gets all Seagate's non-core business and investments, including holdings in CVC, Dragon Systems, Gadzoox Networks and SanDisk. It also gets $2 billion in cash and secures the return of the 128 million Veritas shares held by Seagate. Veritas will issue 109 million shares to Seagate shareholders as part of the deal - a reduction in available stock which will increase earnings per share by some seven per cent. It's a sad but profitable end to Seagate (the corporate entity) which at its height employed around 120,000 people. It was founded by Al Shugart, one of the IT industry's more interesting characters, but no longer involved with Seagate. In 1996 Shugart put his dog Ernest up as a candidate for election to the post of senator in California. Ernest's campaign manager was another of Shugart's canine companions - Higgins. ®

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