Seagate to Go Private in Complex Deal With Veritas, Investor Group

Updated from 6:56 p.m. EST

Seagate Technology (SEG Quote), the largest maker of computer disk drives said Wednesday that it would be acquired by an investor group, in a complex deal that also provides for the sale of Seagate's 33% stake in Veritas Software(VRTS Quote) back to that company.

The Veritas stake accounts for most of Seagate's stock market value. The companies gave a total value of $20.2 billion for the stock and cash deal.

Under the terms of the deal, the investor group, which includes Seagate's management, will acquire Seagate's operating businesses for $2 billion in cash, taking the company private. The group is led by the California venture capital firm Silver Lake Partners and also includes the Texas Pacific Group, the investment firm controlled by the Texas billionaire David Bonderman.

Veritas will acquire the remainder of Seagate, which will then consist of 128 million shares of Veritas, other securities and some cash. The deal will reduce Veritas' shares outstanding, because it will issue only 109.3 million shares to exchange for the Seagate stake, and the Mountain View, Calif., company said the transaction would add to its earnings.

Seagate's stockholders will receive a combination of 0.467 of a Veritas share and approximately $5 a share in cash for each of their Seagate shares, a package that the companies valued at about $77.50 a share, based on Tuesday's closing stock prices.

At least for the first few hours after the deal was announced Wednesday evening, the math worked out in Seagate shareholders' favor. Veritas shares surged 15 1/8, or 10.3%, to 157 5/8 in after-hours trading, according to Instinet, erasing their decline of 12 7/16, or 8%, during regular trading. Based on after-hours prices, the deal had a value of about $73.61 a share in stock, plus approximately $5 in cash, for a total of approximately $78.61 a share.

Seagate's shares jumped 8 7/8, or 13.6%, to 74 1/8 in after-hours trading, after losing 5 7/16, or 8%, in regular trading.

For Seagate, the transaction represents an attempt to grow, using a large cash infusion, during a trying time for disk-drive makers. In a conference call with analysts, company managers expressed frustration with Seagate's lagging stock price.

The deal is also aimed at increasing the company's recruiting efforts, enabling the Scotts Valley, Calif., company to offer fiercely sought engineers "a broad opportunity to participate in start-up equity ownership," Steve Luczo, the company's president and chief executive, said in a statement.

For Veritas, the deal is aimed in part at protecting a significant portion of its ownership and the accompanying board seats.

As a result of the deal, "we take the Veritas shares that Seagate has owned, out of unfriendly hands," said Mark Leslie, chairman and chief executive, speaking to analysts in a conference call.

He said the deal should increase Veritas' stock market value by reducing the number of outstanding shares.

Seagate acquired 155.6 million shares of Veritas in May 1999 after selling a start-up called Network Storage Management to Veritas for $1.6 billion worth of Veritas stock. But as Veritas' share price rose, Seagate sold off some stock in order to build its cash reserves. But these sales presented tax problems.

"Seagate isn't an investment holding company," said Dane Lewis, an analyst at Robertson Stephens. "If Seagate sold Veritas shares, it would have to recognize the gain. This way, they do not because they are retiring and then reissuing shares."

Lewis said he would not be surprised to see Seagate go public again in 12 to 18 months after an anticipated turnaround in the disk-drive business. Lewis rates Seagate shares a buy and does not cover Veritas. His firm has done no underwriting for either company.

It's unclear if becoming a private company will actually help Seagate's operations, said Paul Fox, an analyst at Banc of America Montgomery, who rates Seagate shares a buy and does not cover Veritas. His firm has not done underwriting for either company.

"It will give them more flexibility, but who really knows if it will actually improve operations going forward," Fox said.

Kevin Max, a reporter for TheStreet.com/NYTimes.com joint newsroom, contributed to this report.