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Seagate to go private in $20 billion deal

Seagate Technology (NYSE: SEG) wants to go private.

Under the terms of a $20 billion agreement unveiled after market close Thursday, the storage technology company would sell its 33 percent stake of Veritas Software (Nasdaq: VRTS) back to Veritas while a private investment group led by Silver Lake Partners would buy Seagate's operations for cash. The parties valued the deal at $20 billion, or roughly $77.50 per Seagate share, a 26 percent premium to Seagate's average price over the last 30 days.

That calculation includes $5 from the Silver Lake group and 0.467 Veritas shares, worth about $72.50 for every Seagate share, as of Wednesday's close. It also assumes Veritas will keep about $500 million cash, although it has the right to up to $750 million in retained cash.

Using Thursday's closing Veritas price of 142 1/2, the agreement is worth about $71.50 per Seagate share.

Thursday's deal requires Silver Lake's group to pay about $2 billion cash for Seagate's core operations.

Veritas will issue a total of about 116 million shares to recover 128 million shares from Seagate as well as the aforementioned cash and Seagate's holdings of Gadzoox Networks (Nasdaq: ZOOX), SanDisk (Nasdaq: SNDK), CVC (Nasdaq: CVCI) and Dragon Systems, which was acquired by Lernout & Hauspie (Nasdaq: LHSP).

The deal increases Veritas' earnings per share because the company will have about 12 million fewer shares outstanding, executives said. Veritas executives, who also noted that the cash being received will generate interest income, estimated a 10 percent increase in earnings per share this year and 7.5 percent in 2001 stemming from the Seagate transaction.

First Call consensus currently predicts a profit of 49 cents per share in 2000 and 68 cents per share next year.

"We think the deal makes great sense for both Veritas and its shareholders," said Mark Leslie, chairman and CEO of Veritas.

Seagate executives looked forward to going private. The company will be able to make investments that don't pay off immediately because it won't have to "pay the penalty of 'Did the Street like what it does to that quarter's P&L?' " said Steve Luczo, president and CEO of Seagate.

Private investors have longer-term views, Luczo said. "It gives us a lot of flexibility in moving the company ahead," he said during an conference call with analysts. "We can do it with a time horizon that's probably better suited to the industry we're in."

Wall Street analysts on the call generally praised the proposed buyout.

Silver Lake's buyout partners include Seagate management; GS Capital, a Goldman Sachs unit; August Capital; Texas Pacific Group; Integral Capital; and Chase Capital Partners.

After stagnating for much of last year, shares of Seagate have risen recently along with disk drive stocks in general. The stock rose as high as 74 in afterhours activity. It closed Wednesday's regular trading at 62 15/16.

Also Wednesday, Standard & Poor's said Veritas was replacing automotive chain store operator Pep Boys (NYSE: PBY) in the closely watched S&P 500 Index after the close of trading on Friday.>