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. Instead, they must respond to directors immersed in operational minutiae and intensely focused on costs, operate with a leaner staff and without many big-company perks and generate outsize returns to pay back the big loans typically used to take companies private. There is self-interest at work, too --
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Seagate_supplement - Corporate Financial Policy (NBA 558)...

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