Rackable Buys SGI in Chapter 11 Deal

Rackable Systems (RACK) will buy Silicon Graphics, Inc. (SGIC) in a pre-packaged bankruptcy deal designed to boost the company's position in the high-performance computing market. Silicon Graphics will file for Chapter 11 today, and has agreed to sell most of its assets to Rackable for $25 million in cash. Rackable will also assume some of SGI's liabilities.

The Rackable offer works out to about 47 cents a share, a 15 percent premium to Silicon Graphics' closing price Tuesday. The deal is for "substantially all" of SGI's assets, the companies said. Acquiring a company through bankruptcy allows a buyer to be selective about which assets it acquires, and which debts it assumes.

“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,” said Mark J. Barrenechea, president and CEO of Rackable Systems. “The combined company will be positioned to solve the most demanding business and technology challenges our customers confront today.” Barrenechea said the deal also provides "the potential for significant operational synergies."

“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.”

Rackable has signed an asset purchase agreement, but the deal must be approved by the bankruptcy court. The transaction is expected to close within 60 days, during which SGI said it expects to continue business as usual. SGI’s international operations are included in the sale, but are not a 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.