Seagate_supplement - Corporate Financial Policy(NBA 558...

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Corporate Financial Policy (NBA 558) Seagate Technology Buyout Case Supplement Johnson Graduate School of  Management Fall 2008 Prof. Mark Leary
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2 Leveraged Buyouts: First Wave Junk Bond Issuance Volume
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3 Leveraged Buyouts: Second Wave
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4 Leveraged Buyouts Typical financial structure (Gaughan (1996)): Characteristics: First wave Typical Debt/Capital around 90% Fueled by emergence of junk bond market Focus on conglomerate bust-ups Second wave Typical Debt/Capital around 70% - 80% Much larger capital flows to private equity, much larger deals Focus on improving operations Securities % of Capitalization Source ST/intermediate senior debt 5 - 20 Commercial banks LT senior or subordinated debt 40 - 80 Life insurance co.s, banks, LBO funds Preferred stock 10 - 20 Life insurance co.s, PE firms Common stock 1 - 20 Life insurance co.s, PE firms, management
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5 Benefits of Going Private (WSJ 11/6/06) The Private-Equity CEO --- Facing Tough Stakeholders Instead of Analysts, Investors; 'Even Higher Expectations' CRISTOBAL CONDE was an eager participant in last year's $11 billion purchase of SunGard Data Systems Inc. by seven private-equity firms, one of the largest leveraged buyouts ever. Mr. Conde, a 19-year SunGard veteran and its chief executive, quickly learned how much his life had changed. At Mr. Conde's first meeting with his new bosses, SunGard director David Roux, co- founder of one of the firms that bought the company, offered advice on how to train new clients. In three years running SunGard as a publicly traded company, Mr. Conde says he rarely heard such specific suggestions from directors. He recalls politely rejecting the idea. As Mr. Conde and others are learning, running a company controlled by private equity is a different job than running a publicly traded company. As buyouts proliferate, more executives are making the adjustment. Through Oct. 31, there were 2,163 private- equity buyouts globally valued at $538.67 billion, up from 2,024 deals and $291.63 billion for the same period last year, according to capital-markets data provider Dealogic. More deals are coming: Private-equity firms have raised more than $199 billion since the start of 2005 but have spent only $56 billion, according to another data tracker, Thomson Financial. Executives at these companies are freed from the requirements of the Sarbanes- Oxley corporate-reform law, the tyranny of quarterly earnings expectations and questions from investors and analysts about hourly stock moves.
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