1. Perform a baseline valuation of Seagate's disk drive business. You can assume that of the $765 million in cash that Suez Partners is getting, only $465 million is needed for working capital and that $300 million is excess cash.
2. Structure a transaction for Seagate's disk drive business. How much should Silver Lake bid for the business? How much leverage should Silver Lake employ if it targets at least a 35% return on its equity investments?
   • You should assume that Silver Lake plans to take the business public in 2006 and that they are targeting an investment grade credit rating on Seagate's debt by 2006 in order to facilitate the IPO.
   • To simplify your calculations, you should assume that the initial debt will not be refinanced until 2006. Furthermore, any future borrowing (prior to 2006) will occur at the same interest rate as the initial debt.
   • You may assume that the interest rate on CCC-rated corporate debt is 11.86%.

Exhibit 8 Projeced Operating Performance of Seagate Disk Drive Business 2000 2001 2002 Year Ending June 30, 2003 2004 2005 2006 Base Case ($ million) Revenues $6,619 $7,417 $8,564 $9,504 $10,416 $11,359 $12,350 Gross Margin 1,264 1,409 1,696 2,043 2,312 2,624 3,026 EBITA 141 189 316 449 499 614 724 Depreciation 625 626 642 666 708 726 729 Capital Expenditures 627 690 720 795 700 725 750 Upside Case ($ million) Revenues $6,619 $8,185 $10,146 $11,283 $12,626 $13,961 $15,404 EBITA 141 365 689 783 867 1,000 1,167 Downside Case ($ million) Revenues EBITA $6,619 $7,393 $7,797 $8,310 $8,801 $9,269 $9,759 141 189 322 363 378 403 407