Rackable Acquire SGI for $25 million

Rackable Systems, Inc., provider of servers and storage products for medium to large-scale data centers, announced its agreement to acquire substantially all the assets of Silicon Graphics, Inc. for approximately $25 million in cash, subject to adjustment in certain circumstances, plus the assumption of certain liabilities associated with the acquired assets.

The combined businesses will provide customers with market leading hardware and software technology within large-scale x86 cluster computing, HPC, Internet, Cloud Computing, large-scale data storage environments and visualization platforms across many verticals and geographies. This combination is also expected to result in a stronger global services organization; reaching commercial, government and scientific sectors on a worldwide basis.

"The combined company will be positioned to solve the most demanding business and technology challenges our customers confront today," said Mark J. Barrenechea, president and CEO of Rackable Systems. "In addition, this combination gives us the potential for significant operational synergies, a strong balance sheet, and positions the combined company for long-term growth and profitability."

"We have been working very hard to strengthen our company, and today, we’ve taken another big step in that direction," stated Robert "Bo" Ewald, CEO of Silicon Graphics. "This transaction represents a compelling opportunity for Silicon Graphics’ customers, partners and employees, who can all benefit from the emerging stronger company with better technologies, products and markets reach."

Barrenechea added: "Together, we believe we will be a much stronger entity with great products and people offering a compelling proposition to compete more effectively in, and across, our collective markets."

Rackable has signed an Asset Purchase Agreement to acquire substantially all the assets of SGI, and to assume certain liabilities relating to the assets, pursuant to Chapter 11 of the U.S. Bankruptcy Code, under which SGI filed its petition in New York on April 1, 2009. Completion of the transaction is subject to a number of closing conditions, including the approval of the Bankruptcy Court, and other uncertainties. Subject to such conditions and uncertainties, the transaction is expected to close within approximately 60 days. It is expected that SGI’s business operations will continue during the pre-closing period. SGI’s international operations would be part of the sale, but would not be part of the bankruptcy process.

Rackable also announced today that it had suspended its previously announced program including the repurchase of up to $40 million of the company’s stock.

Comments

That the end of an old and prestigious workstation and server manufacturer. Founded by Jim Clark in 1982, SGI, at a time a Silicon Valley star, top $4 billion in revenues, but now ten times less. The deal with Rackable is announced the same April 1 SGI filed for Chapter 11 for a second time in three years. In its Chapter 11 filing, the Sunnyvale, CA-based company listed assets of $390.5 million and total debt of $526.5 million. Its largest creditors include Voltaire, Intel Americas and Qimonda.

SGI also received Nasdaq delisting notification because market value was under $35 million last December.

LSI is a big OEM for SGI for its InfiniteStorage RAID and NAS, but it’s not sure than Rackable will continue to work with a company competiting for some storage systems. SGI, more and more involved in HPC, is also working with a lot of other storage partners including Atempo, BakBone, Brocade, DataDirect Networks, EMC, HDS, HP, Quantum, Panasas, Spectra Logic and Sun.

At Rackable, storage represents between 10% and 20% of its business in 2008 with this activity up 23% year over year focused on the manufacturing of storage servers and external RAID, as well as filers for recent OEM NetApp.

Note that Rick Belluzzo, current Quantum’s CEO and chairman, hold the same two positions at SGI in 1998 but abruptly resigned in August 1999. Here is what Wikipedia write about him:” Much of his career is clouded in controversy and many consider him to be responsible for the demise of SGI. He was a strong advocate at HP to reduce their investments in HP-UX and PA-RISC in favor of Windows NT and Itanium, as well as getting SGI to cut their investments in IRIX and MIPS. The effect of these decisions was to destroy two of the leading platforms in 64-bit computing and greatly increased the opportunity for Intel and Microsoft to get into high-end computing.” Since his arrival in September 2002, Quantum has accumulated net losses each year, for a total of $371 million for the last six annual fiscal periods.