I. How does the tax liability from selling the Veritas stock in the market compare to the discount Seagate shareholders have to take in the proposed exchange offer.
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The Seagate Technology shareholder is a public company that deals in the manufacture of computer disk drives and other data storage devices. It is one of the largest manufacturers in the world with estimated annual revenues of $6.5 billion. Veritas Software Corporation deals with the manufacturer of storage management software and it is independent in its operations. The main reason that that Seagate Shareholders proposes this offer is to make huge monetary gains for themselves and the realization of full capital potential. This is possible because the Veritas stock exceeds the entire market share of Seagate Shareholders. In the proposed exchange offer between Veritas and Seagate Shareholders, Veritas Software Corporation will be able to escape tax should they accept the offer from Seagate Shareholders. This is because the stocks will not be sold due to the use of a tax free swap. Veritas will therefore be able to escape a huge tax liability bill. Seagate Shareholders will be affected by this proposed exchange because they will no longer pay higher taxes if they divest the shares owned by Veritas into a separate transaction but they will incur a huge and significant tax liability should they attempt to monetize the shares of Veritas. We can therefore conclude that the tax liability of both companies will be significantly affected by the proposed either negatively or positively depending on the policies that Seagate decide to implement but both of them will gain profitably from offer because of the ability to escape huge tax liabilities.
II. Was there a conflict of interest when the management of Seagate teams up with private equity to buyout the company? Why.
There was a conflict of interest when the management of Seagate teamed up with the private equity firm Silver Lake Partners to buy out Veritas Company. This is true because the major reason behind this restructuring proposal was because the shares of Seagate were undervalued at the prevailing price levels and therefore they had to gain back the market value that Veritas had acquired to the extent of exceeding the entire market capitalization of Seagate Shareholders. By undertaking this proposal, Seagate Shareholders would be able to realize the full value of the company through the distribution of Veritas stock free of tax and through the sale of the disk drive operations at a fair market value. This proposal however, faced a number of challenges and critical decisions had to be made before it was implemented. This led to the exclusion of Luczo from the board of deliberations and the entire process of the proposal was led by Co-Chairmen of Seagate shareholders Gary Filler and Lawrence Perlman whom were members of the board of management that was coordinating the buyout.
III. From Silver Lake’s point of view, was Seagate a good buyout target? Why or why not?
According to Silver Lake’s point of view, Seagate was a good buyout target because of the benefits that they would gain from the pursuit of the proposal. Silver Lake believed that Seagate would make significant wealth gains from the buyout and in return of their cooperation, they would be compensated adequately by Seagate Shareholders for the risks they could incur from undertaking this investment proposal. The proposal from Silver Lake offered a potentially viable and best solution to the challenges that Seagate were facing. This conclusion was arrived at through a detailed research and analysis of Seagate Financial performance and that of their competitors. The expected increase in revenues and profits for Seagate Shareholders in spite of the competitive nature of the market made the target to be a good one for Silver Lake. However, the buyout proposal was dependent on Veritas Shareholders. This is because their approval of the second stage merger was crucial for the continuation of the process and this was based on offering Veritas an attractive return.
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