Rackable to Acquire Silicon Graphics for $25M

By Antone Gonsalves, InformationWeek

Rackable Systems, a maker of server and storage for medium to large data centers, said Wednesday that it has agreed to buy struggling computer maker Silicon Graphics for $25 million in cash. The deal was announced the same day Silicon Graphics filed for federal bankruptcy protection in New York.

The deal would add to Rackable's product line Silicon Graphics' portfolio of servers and software for building x86 clusters for high-performance computing, cloud computing, and large-scale data storage. Silicon Graphics also would boost Rackable's global service operations for the commercial, government, and scientific sectors.

"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," Mark J. Barrenechea, president and chief executive of Rackable, said in a statement.

Under the deal, Rackable acquires all of Silicon Graphics' assets and assumes some liabilities related to the bankruptcy filing. The agreement, which is subject to approval of the U.S. Bankruptcy Court, is expected to be completed in about 60 days, pending an auction that could lead to higher bids. Rackable's offer represents a 15% premium over Silicon Graphics' closing stock price on Tuesday.Rackable is apparently hoping the Silicon Graphics purchase will boost its own balance sheets. The company has posted five consecutive quarterly losses. On Wednesday, the company announced that it has suspended its plans to repurchase up to $40 million of the company's stock.

Silicon Graphics' bankruptcy filing is not its first. The company first came out of bankruptcy in 2006 and about a year later started offering computers with Microsoft (NSDQ: MSFT) HPC software, which it had hoped would broaden its reach within the supercomputing marketplace.

In its latest bankruptcy filing, Silicon Graphics said it still faced challenges left over from the 2006 restructuring, including a high cost structure, tougher competition, and delays in introducing new technology, The Wall Street Journal reported. Silicon Graphics, which reported $390.5 million in assets and $526.5 million in debts, said it had also failed to get its products and services into new markets.

About a year ago, Silicon Graphics acquired Linux Networx's software, patents, and technology, which was expected to advance Silicon Graphics HPC products further. Linux Networx had software and several patents in cluster design, power and cooling, and cluster optimization.

Silicon Graphics started as maker of ultrapowerful workstations based on RISC processors, but later switched to selling local area network servers with Intel processors, blade servers, and storage. The company targeted media data management, industrial design in the automotive and aerospace sectors, health care, and government and academic markets. As of March 1, the company employed 1,200 people.0