Rob,
SSB must have read your post on VRTS/SEG. Here is their spin on it. Of course, it must be read with the thought that they are completely in bed with Silver Lake, Texas Pacific, et al, and are clearly panting to do business with them in the future. The Chinese Wall is, ummm, shall we say a joke?
From the Yahoo Veritas thread:
SSB sees little impact from SEG Over-
hang of shares. iu
by: iu85alum (M/PA)
9/5/00 7:40 pm
Msg: 13213 of 13219
Salomon Smith Barney ~ September 5, 2000
VERITAS Software (VRTS)
VRTS: There Does Not Seem To Be Much Seagate 1H (Buy, High Risk)
Overhang For VRTS. Mkt Cap: $48,030.4 mil.
September 5, SUMMARY
2000 * The proposed Seagate/Veritas transaction has ignited the
perception that 1) Seagate shareholders will dump their
COMPUTER Veritas shares upon conversion, and 2) portfolio managers
STORAGE will be over weighted in VRTS upon conversion of their SEG
H. Clinton shares into VRTS shares and have to adjust their position
Vaughan by selling VRTS. Some anticipate that both will put
downward pressure on VRTS.
* 1-We believe many holders of SEG used it as a backdoor into
John C. Dean VRTS.
* 2-Following the close of the proposed transaction, we
believe any weakness in the stock will be short lived and
the overhang is mostly a psychological factor. The
overhang looks to be only 1.45x Veritas' average daily
trading volume.
* We maintain our 1H rating and $200 price target.
Since Veritas entered into an agreement to acquire Seagate's
portfolio of investments on March 29, 2000 (including 128
million shares of VRTS) and spin the bulk of it back to SEG
shareholders, short pressure and speculation surrounding VRTS
has mounted. The proposed transaction has ignited the
perception that 1) Seagate shareholders will dump their
Veritas shares upon conversion which will, in turn, put
downward pressure on VRTS, and 2) portfolio managers will be
over weighted in VRTS upon conversion of their SEG shares into
VRTS shares and have to adjust their positions by selling VRTS
to rebalance their portfolios.
While we agree that the first concern is real, we are not
convinced that there are many holders of SEG that did not
invest in it as a backdoor into VRTS.
We went to our Equity Derivative Research department for
answers to the second and more compelling point...
The Skinny From Our Equity Derivative Research Desk
---------------------------------------------------
Seagate owns 128,100,000 shares of Veritas. Assuming that 8%
of the S&P 500 is owned by indexers, we estimate there will be
10,248,000 shares of VRTS to sell. The current share price of
VRTS is $121.75 (on 9/1) so the total dollar value of the
shares to sell will be approximately $1.2 billion. The
combined average daily volume of VRTS + SEG is about 7.0
million shares, making the shares to sell 1.45 times the
average daily volume. Index fund managers can either sell SEG
shares prior to the close of the deal or sell VRTS shares at
or after the close. We believe the 1.45x daily volume to sell
is unlikely to have a major impact on the stock following the
expected completion of the transaction, though the
psychological effect (and involvement by speculators)
occasionally pushes stocks lower for a day or two.
Following the close of the proposed transaction, we believe
any weakness in the stock will be short lived and the overhang
is mostly a psychological factor.
Other Facts
-----------
*While the transaction was originally expected to close in
July, it is now anticipated to close late September/early
October due to the SEC review process.
*Arbitrageurs have been shorting Veritas and buying Seagate in
order to play the transaction. This has made Veritas one of
the top short positions in the market. Following the close of
the proposed transaction, the short position in Veritas will
indeed drop but it will do so without a closing buy in the
open market. Effectively, the arbs bought Veritas stock (or
the right to receive Veritas stock) by originally buying
Seagate.
*The transaction is expected to be about 7% accretive next
year or about $0.05 to EPS. |
