Per the new agreement, Symantec will lower the selling price for Veritas to $7.4 billion from $8 billion agreed upon in August last year (read: Symantec to Sell Veritas Business to Carlyle Group for $8B). Also, both the companies have raised the amount of offshore cash remaining with Veritas to $400 million from $200 million.
Therefore, net consideration for Symantec will be $7 billion, including $6.6 billion in cash and an equity interest of $400 million in Veritas. The transaction will result in reduction of $1 billion in after-tax cash proceeds to Symantec. Upon deal completion, Symantec will receive after-tax cash proceeds of $5.3 billion instead of $6.3 billion agreed earlier.
Although neither of the companies commented on the reason for this, we believe that the strained debt markets might have been responsible to some extent. According to sources, Carlyle Group is struggling to find lenders to fund the transaction.
Last November, Bloomberg stated that Bank of America Corp. BAC and Morgan Stanley MS have postponed marketing $5.5 billion worth of bonds and loans for Carlyle Group as investors are shying away from risky corporate bonds.
Later, the banks also revised the terms of debt offering by reducing the total loan size by $950 million and widening the discount to 95 cents on the U.S. dollar to attract investors.
However, the lucrative offer was not much of a help. Last year, in December, Symantec and Carlyle Group had to push back the closing date of the transaction to Jan 29, 2016 from Jan 1 (read: Symantec Expects to Close Veritas Sale by January End). However, per yesterday’s announcement, both the companies expect to complete the deal on the revised date.
Veritas offers a wide range of data backup and recovery, and storage management products to nearly 75% of the Fortune 500 companies. In 2005, Symantec acquired Veritas for roughly $13.5 billion in an all-stock deal.
However, the merger did not live up to Symantec’s expectations as slowing PC sales hurt the security business, while sluggish demand for storage and data management products affected Veritas. The current valuation of the company’s data storage unit marks a significant drop from the acquisition price.
We believe that the divestment is likely to streamline Symantec’s operations and maximize shareholders’ value. Renewed focus on the core business can also revive its operational performance. Moreover, the deal will provide Symantec the much-needed funds to expand the product portfolio and presence in fast-growing markets.
Currently, Symantec carries a Zacks Rank #3 (Hold).
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