Rackable Snaps Up Silicon Graphics in Fire Sale
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Server and data storage products maker Rackable Systems on Wednesday said it agreed to acquire Silicon Graphics, which filed for bankruptcy protection earlier in the day, for about $25 million in cash.
The Sunnyvale, California-based Silicon Graphics (NASDAQ: SGIC) listed assets of $390.5 million and total debt of $526.5 million in its Chapter 11 filed in the United States Bankruptcy Court for the Southern District of New York, filings showed.
Separately, in a regulatory filing with the U.S. Securities and Exchange Commission, Silicon Graphics said it expects to pay off secured creditors with net proceeds from the sale.
Silicon Graphics had earlier filed for Chapter 11 in 2006, citing declining revenue and increased competition and emerged from bankruptcy the same year.
The filing for bankruptcy constitutes an event of default under the senior secured credit agreement with Morgan Stanley Senior Funding Inc as administrative agent and revolving agent, Morgan Stanley & Co as collateral agent, and the other lenders and credit parties, Silicon Graphics said.
The total principal amount of the outstanding obligations under the term loan was about $141.7 million and the total principal amount of the outstanding obligations under the revolving loan was about $20.7 million.
Silicon Graphic's international operations would be part of the sale, but would not be part of the bankruptcy process, Rackable Systems (NASDAQ: RACK) said in a release.
Subject to a number of closing conditions, including the approval of the bankruptcy court and other uncertainties, the transaction is expected to close within about 60 days, Rackable Systems said.
Rackable also said it had suspended its previously announced share buyback program of up to $40 million.
Silicon Graphics, which reported a wider second-quarter net loss of $49 million, had said in February that its heavy debt load were hurting the company's ability to win more business.
The company listed Voltaire, Intel Americas and Qimonda as its largest creditors.
The company said it hired Houlihan, Lokey, Howard & Zukin Capital Inc as financial advisor and investment bankers, and law firm Ropes & Gray as its bankruptcy counsel.
Shares of Silicon Graphics fell 39 percent to $0.25 in trading before the bell. They closed at $0.41 Tuesday on NASDAQ. Shares of Rackable Systems $4.06 Tuesday on NASDAQ.