...The Price of RAM And Hard Drive Storage Over The Past 30 Years The price and capacities of RAM and hard drive storage have come a long way in the past 30 years. Take for instance, in 1981 an 18MB hard drive cost $2500, today a 1TB hard drive costs $150. In 1990 RAM costs were $50 per MB and today one can purchase 2GB RAM for approximately $50. Observe the following table pertaining to hard drive cost vs GB capacity from 1980-2009: Table Source: iStockAnalyst Observe that there is a strong exponential correlation in the capacity vs cost ratio, where r=0.9916. During the last 30 years the capacity per unit cost ratio has nearly doubled approximately every 14 months. The regression equation is given by: Many TB+ drives have become available which recently broken the $0.10/GB boundary, whilst the next milestone being $0.01/GB or $10/TB. If historical trends continue, then 10 years from now the cost per GB of hard drive capacity will become $0.0000351 per GB or $0.0351 per TB. For $100, one could purchase a 2,849TB drive 10 years from now, based on the analysis of historical trends. Although 120 PB drives are currently available in the server and super computing market, consumer grade hard drives aren’t available in these sizes, as the physical size and cost per PB is too great for the marketability in the consumer market. Based on historical trends, one could forecast the availability of a consumer level 100TB hard drive in the next five years. It must be noted all figures...
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...essential chore. Such data-transfer scenarios are where the new SuperSpeed USB 3.0 standard and its theoretical, blazing-fast throughput of 5 gigabits per second--as promised by the USB Implementers Forum (USB-IF)--will change your life for the better. And if our tests of four new USB 3.0 hard drives from Buffalo Technology, Iomega, Seagate, and Western Digital are indicative, the change will certainly be dramatic. USB 3.0's impressive speed is its raison d'être, part of its beauty is its backward compatibility with USB 2.0. You need a new cable and a new host adapter (or one of the new motherboards built to but support USB 3.0) to achieve USB 3.0 performance. But you can still use a USB 3.0 device on a USB 2.0 port and achieve typical USB 2.0 performance. You may also use USB 2.0 devices on a USB 3.0 port--though, again, with no gain in speed. The technology behind USB 3.0 more closely resembles PCI Express than USB 2.0. Backward compatibility comes from clever connector design, and a dual bus. The designers added four data lines and a ground wire for the new USB 3.0 signals, and retained the existing pair of data lines for use with USB 2.0 devices. The two technologies share the existing power and ground wires, but they are otherwise completely separated. As such, the USB 3.0 connector has design changes to accommodate the extra data lines. If you examine the inside of a type A USB 3.0 port with its familiar rectangular shape closely, you'll see that it shares the same size...
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...(normally) metal disk. The maximum areal density is defined by the size of the magnetic particles in the surface, as well as the size of the "head" used to read and write the data. The areal density of disk storage devices has increased dramatically since IBM introduced the RAMAC, the first hard disk in 1956. RAMAC had an areal density of 2,000 bit/in². Commercial hard drives in 2005 typically offer densities between 100 and 150 Gbit/in², an increase of about 75 million times over the RAMAC. In 2005 Toshiba introduced a new hard drive using perpendicular recording, which features a density of 179 Gbit/in².[1] Toshiba's experimental systems have demonstrated 277 Gbit/in², and in 2006 Seagate Technology demonstrated a drive with a 421 Gbit/in² density.[2] It is expected that perpendicular recording technology can scale to about 1 Tbit/in² at its maximum. [3] Compact Discs (CDs), another common storage media of the early 2000s, stores data in small pits in plastic surface that is then covered with a thin layer of reflective metal. The standard defines pits that are 0.83 micrometers long and 0.5 micrometers wide, arranged in tracks spaced 1.6 micrometers apart, offering a density of about 0.90 Gbit/in². DVD disks are essentially a "product improved" CD, using more of the disk surface, smaller pits (0.64 micrometers), and tighter tracks (0.74 micrometers), offering a density of about 2.2 Gbit/in². Further improvements in HD DVD and Blu-ray offer densities around 7.5 Gbit/in² and 12...
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...Seagate Technology Buyout - Case Study Question 1: Why is Seagate undertaking this transaction? Is it necessary to divest the Veritas shares in a separate transaction? Who are the winners and losers resulting from the transaction? Answer: Seagate Technology was badly undervalued as far asSTOCK MARKET is considered, and due to this, the company decided to go for leverage buyout option. A large stake of VERITAS Software Corporation's stocks is owned by Seagate Technology, because of which its stock price is doubled (from its original price), however, the share price of Seagate Technology hardly changed for a long time. Therefore, the reason that the attempts and efforts of senior management were useless, made them decide to engage in Leverage Buyout (LBO). As a result, Seagate went for two fold transaction, i.e. the first is to sell out all of the company's disk drive manufacturing assets including $ 765 million of cash to the acquirer “Silver Lake”. On the other hand, the most crucial thing for Seagate Technology is to take care of the large stake of VERITAS Software Corporation's stocks. Therefore, it was essential for Seagate Technology to go for a separate transaction in order to evade paying large amount of taxes. The transaction of shares among VERITAS and Seagate is taken into account as reorganization of asset, while not applying any corporate taxes. Thus, by using two-fold transaction, Seagate Technology became able to liquidate its undervalued shares...
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...segments o Slowing revenues, increased unit sales • Storage networking, Consumer Electronic market- new growth segments Seagate Technology • Founded in 1979 • Designs, manufactures, and market a broad line of disk drives for use in computer systems for desktop PCs, workstations and servers, and supercomputers • Only major independent disk drive manufacturer to be fully vertically integrated o Higher R&D and capital expenses, therefore higher fixed costs o Gives a comparative advantage , can develop technologies “in- house” so wouldn’t have to depend on independent suppliers, in turn eliminates risk of being unable to offer cutting edge technology in its products in case of economic downturn o Could better adapt to demand fluctuations, very helpful since short product life cycles • Financially volatile like the rest of the disk drive industry • Maintains products in both high-end and low-end markets • In 1996 and early 1997, launched a broad-restructuring effort , exited mobile disk drive segment, began to target storage networking and consumer electronics market o Acquired XIOtech Corp. o Supplying WebTV with disk drives Background of Buyout Transaction: • In May 1999 sold Network & Storage Management Group (NSMG) to VERITAS Software o Seagate received 155M shares of VERITAS stock, making it over a 40% stockholder • Problems: o Over next six months, VERITAS shares...
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...Seagate Technology Buyout March 22, 2006 By: Rachel Cluck Beth Crocker Heather Preston Jessica Seal Table of Contents Introduction............................................................................3 Objectives ..............................................................................3 Overview................................................................................4 Alternatives – How to Address Seagate’s Low Stock Price ..5 Do Nothing.............................................................................6 Unload all VERITAS Stake ...................................................7 Sell to Other Investors ...........................................................7 Horizontal Merger or Buyout.................................................7 Vertical Integration ................................................................8 Leveraged Buyouts ............................................................. 10 The Discounted Cash Flow Model ..................................... 11 The Leveraged Buyout Model ............................................ 12 The SML Approach ............................................................ 13 LBO Price ........................................................................... 14 Capital Structure Proposed ................................................. 15 Payback Period for Silver Lake .......................................... 17 Shareholders’ Approval ................................................
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...Seagate Technology Buyout CASE SUMMARY In May of 1999, Seagate sold one of its companies, the Network & Storage Management Group (NSMG), to VERITAS in return for 155 million shares of VERITAS stock. The transaction made Seagate VERITAS’s largest stockholder, creating an ownership stake of over 40%. When a few problems regarding stock prices arose, concerned shareholders were not far behind. Following the transaction, the market was failing to recognize the value of Seagate’s stake in VERITAS, as evident from a 200% increase in VERITAS stock versus only a 25% increase in Seagate’s stock. The board felt that the market was incredibly under pricing Seagate’s stock. After two failed attempts to increase Seagate’s stock price and unlock its value from VERITAS, the company turned to Morgan Stanley for help. In early November of 1999, Morgan Stanley arranged a meeting between Seagate executives and representatives of Silver Lake Partners. After several months of discussion, Silver Lake delivered a proposal and potential solution to Seagate’s problem. This proposal involved a complicated two-step transaction. The first step would involve Seagate selling off its disk drive business, including about $765 million in cash, to a newly-formed company controlled by Silver Lake. The purchase would be financed through a LBO in which Silver Lake and other private equity investors would provide a portion of the selling price through equity, and the rest would be financed through debt The second...
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...Seagate Technology Buyout I. INTRODUCTION In 1999, Seagate Technology, Inc., decided that in order to increase their market value, they needed to make some big changes. Due to their undervalued stock price, Seagate decided to undergo a leveraged buyout (LBO) with Silver Lake Partners L.P. During this time, four main concerns arose among the parties involved: • • • • How can Seagate address the company’s low stock price? How should the buyout be financed? What should the capital structure look like? How much should investors pay to acquire Seagate’s disk drive operations? How can Seagate address VERITAS Software Corporation’s needs and concerns? After analyzing the case and talking to executives at Silver Lake and Seagate, we think that Seagate’s low stock price is best addressed by a leveraged buyout with a new capital structure composed of 45% equity and 55% debt. Furthermore, we have found that the company is worth approximately $2 billion in the buyout. Finally, VERITAS should agree to participate in the deal because they will also win by retiring a portion of their stock. The subsequent sections of this report will further explain how we arrived at these conclusions. II. ASSUMPTIONS In analyzing the capital structure, the value of the company, and stock price of Seagate Technology, we are operating under the following assumptions: • • • Corporate tax rate of 34% Market risk premium of 9% (based on 75-year historic average) Capital expenditures from Projected Operating...
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...Case 9 & 10 Analysis Seagate Technology Buyout The Hertz Corporation Advanced Corporate Finance MW 2:00-3:15 PM Question 1 On page 1, the “value-gap” is two-fold. It signifies an under-valuation of Seagate’s core disk drive operating assets due to unfavorable public market investor preferences. Furthermore, the value of the Veritas share price has caused the Veritas stake to far outweigh the value of Seagate’s stand-alone market capitalization. Since Seagate does not own at least 80% of the voting stock in Veritas, distributing the wealth intrinsic in that stake to Seagate shareholders would prove difficult due to the hefty corporate tax rate of 34% that would erode its full-value. From a sum of the parts perspective, it seems that since the Veritas shares held by Seagate appreciated by more than 200%, while Seagate’s shares only increased by 25%, the market assigned relatively no value to Seagate’s market leading position in the disk drive business. This lack of market recognition for the true value of Seagate’s assets forced management to seek action. The management believed that the value of Seagate should be attributed to the value of its operating assets. Since the market was attributing such a high value to its Veritas stake, the market made it appear that Seagate was an investment holding company, rather than being in the disk drives business. There also seemed to be a “value-gap” in the sense that the Veritas stake is attached to business risk in the software...
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...Seagate Technology Buyout This case looked at Silver Lake’s proposed leveraged buyout (LBO) of Seagate Technology Inc’s (Seagate) disk drive operations, followed by the tax-free acquisition of Seagate’s remaining assets by Veritas Software Corp (Veritas). The stock prices of the two firms varied greatly at the time with Veritas’ growing much more rapidly than Seagate’s, 200% versus 20% respectively. Executives believed that Seagate’s shares had become undervalued. In order to take advantage of the situation and make money with minimal or no risk I personally would have invested in Seagate. The idea being that the market would eventually realize this undervaluation and correct the price of Seagate’s shares or the company would look to unlock this shareholder value through other means such as the proposed LBO. If everyone in the market took this position, one would see greater demand for Seagate’s shares and therefore the price of these shares would increase eliminating the undervaluation and the arbitrage opportunity. Seagate and Veritas shares were priced the way they were due to the market’s perceived risk of the two firms. Seagate was observed to have higher risk and that resulted in a more discounted share price. This risk involved the nature of Seagate’s business. In the late 1990’s disk drive producers were becoming more out of favour with the stock market versus software companies. Although disk drive producers were seeing growth in their number of unit sales, high...
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...over 200 % after the leveraged buyout of Seagate’s disk drive operations and the tax-free acquisition of Seagate’s remaining assets by Veritas Software Corporation. In Exhibit 5 it is shown that the stock price increased to 168,69 $/share in March 2000, while the stock price of Seagate Technology was 64,25 $/share at that time (Exhibit 3). Exhibit 4 shows the interesting development that starting in October 1999 the pre-tax value of Veritas Stake overruns the market capitalization of Seagate. In March 2000 there is a huge gap between the Seagate market capitalization and the pre-tax value of Veritas Stake, which points to overvalued Veritas shares. As an investor I would short sell the Veritas share, to make money as soon as the Veritas share value goes down and normalizes. If every MBA would take this position the price of Veritas shares would decrease to a normal level very fast where it would not make sense to wait for a further decreasement of the price. Otherwise you could also say that Seagate’s stock value is undervalued. So buying it and selling it to its fair value would give an arbitrage possibility. But here again, when every MBA would buy shares of Seagate, it will be priced at its fair value very soon. The reasons why Veritas and Seagate are priced the way they are, are different. Both companies are active in different market segments with different conditions. Veritas is a smaller company with a main focus on software, while Seagate is active in the disk drive market...
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...Seagate Technology Buyout Case Analysis FNCE 601, Chenxi Zhu (00311724) September 28, 2015 Seagate was one of the world’s largest manufacturers of computer disk drives and related data storage devices. Besides the disk drive operations, Seagate’s main asset was a significant stake in Veritas’s common stock. The entire market capitalization of Seagate was approximately $14.6 billion (stock price: $64.25, shares outstanding: 227.2 million). However, the market value of the Seagate’s stake in Veritas was about $21.6 billion (stock price: $168.69, shares outstanding: 393.6 million). It seemed that the market assigned no value to Seagate’s disk drive business, despite its large size and market-leading position. Therefore, we can tell Seagate’s stock price was underestimated. There are two main reasons to cause the arbitrage: * Value of Seagate’s stake in Veritas’s common stock would be significantly reduced due to high tax liability if it ever tried to sell these shares. * Stock market favored Internet businesses and companies that manufactured cheaper data storage hardware. And the market did not favor disk drive business because of its volatile revenue, short-life cycle as well as heavy capital needs in R&D investment. Therefore, Seagate’s core disk drive operations were not receiving full value in the stock market. In addition, there was another soft issue contributed to the low stock price of Seagate’s shares. Seagate’s employee held stock options and restricted...
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...12:00 COURSE OBJECTIVE Capital Investment Planning is a case course examining corporate investment decisions and related issues in financial strategy. The course is intended as a continuation of Finance 552, Corporate Planning and Financing, and is suitable for generalists and finance specialists who seek a solid grounding in corporate financial management. Finance 555 may be substituted for Finance 552 as a prerequisite. Principal topics include: use of discounted cash flow analysis to evaluate investment opportunities, estimating capital costs, or discount rates, capital budgeting systems and their affect on resource allocation decisions, valuing a company or division, merger analysis, corporate restructuring including leveraged buyouts, and issues in financial strategy. When you complete this course, you should be able to: Estimate an investment’s relevant costs and benefits Estimate a company's weighted-average cost of capital and understand its role in investment decision making Use discounted cash flow techniques, decision trees, and simulation to analyze investment opportunities Value (i.e., put a price tag on) companies and divisions Analyze private equity and highly leveraged investments Understand the major issues in the ongoing debate over corporate governance Spot opportunities in which financial restructuring can create value Use valuation techniques to analyze strategic business alternatives REQUIRED MATERIALS 1. Copeland, Tom...
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...This version: 7/16/2015 College of Business Administration Loyola Marymount University MBAF 614: Financial Analysis & Strategy Fall 2015 Instructor: Dr. David Offenberg Office: Hilton 313 Phone: (310) 338-2903 E-mail: doffenberg@lmu.edu Office Hours: Tuesday, 4:00 – 6:00 p.m. (or by appointment) Class time: Tuesday, 7:15 - 10:00 p.m. (HIL 023) Course Overview: The purpose of this course is to study the impact of corporate financial strategy on shareholder wealth. In essence, this course covers the fundamentals of MBAA 608 with a lot more depth. Throughout the semester, we will examine real situations that were faced by real chief financial officers. In the end, you should have a much better appreciation for the role of the CFO in keeping the corporation afloat. Method: This course is taught via case studies supported by lectures. Class sessions begin with a studentled analysis of the assigned case. The remainder of the class period will be dedicated to further analysis of the case. Students have substantial responsibility (and incentives) for coming to class prepared to engage in active discussion. Each student is expected to work in a team to analyze the cases. Readings: The textbook for the course is: Case Problems in Finance, by Kester, Ruback and Tufano, Twelfth Edition, Publisher: McGraw Hill- Irwin. The bookstore will not carry the book so you must order it online. The MBAA 608 textbook is also a useful reference, but not required (Brigham...
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...Case # 5-0022 Updated December 15, 2004 Note on Exits D O The number and dollar value of exits declined significantly during the economic downturn of 2000. In 1999, equity underwritings in the technology, health care, and consumer segments totaled 665 but by 2002, the total was just 151 transactions. Mergers and acquisitions for the same sectors totaled 988 in 1999 and just 388 in This document was written by Adjunct Assistant Professor Fred Wainwright and Research Assistant Angela Groeninger, under the supervision of Professor Colin Blaydon as a basis for class discussion rather than to illustrate either effective or ineffective management. Copyright © 2003 Trustees of Dartmouth College. All rights reserved. To order additional copies, please call (603) 646-0522. No part of this document may be reproduced, stored in any retrieval system, or transmitted in any form or by any means without the express written consent of the Tuck School of Business at Dartmouth College. N As shown in Exhibits 1 and 2, mergers and acquisitions are much more common in recent years than IPOs. Entrepreneurs that dream of an IPO and insist upon it when seeking an exit are vastly reducing their opportunities for successfully monetizing their shares. O The most popular exit strategies are: • A merger with another company, either public or private • An acquisition by another company, either public or private • An Initial Public Offering (“IPO”) whereby a private company offers its shares to the...
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