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 $11\mathrm{.}86\%.$Exhibit $8$ Projeced Operating Performance of Seagate Disk Drive Business

Source: Casewriters' estimates based on revenues and EBITA projections contained in SEC filings.

"The "downside case" is based on the "buyer case" described in the first VERITAS and Seagate Joint Proxy

Statement$/$Prospectus filed with the SEC in May $2000.$