RealTime IT News

Micron to Buy Interland, Sell PC Business

Micron Electronics Inc. (Nasdaq: MUEI) and Interland Inc. (Nasdaq: ILND) Friday (March 23) announced that the boards of directors for both companies have approved a definitive merger agreement. Micron will acquire Interland in an all-stock deal valued at approximately $130 million, which it plans to combine with HostPro, its Los Angeles-based web hosting subsidiary.

Micron Electronics also announced plans to sell its non-hosting businesses, MicronPC.com and SpecTek.

The combined hosting company will be named Interland, and will be headquartered in Atlanta. Together, the companies currently have six data centers, 112,000 customers, and more than 227,000 paid hosted Web sites.

"Today's announcement marks a major step toward completion of a process we began more than two years ago to transform Micron Electronics from a traditional PC manufacturer to an Internet-centric computing company with hosting as a core strategic business," said Micron Electronics chairman and CEO Joel J. Kocher. "Hosting will serve as the foundation for many opportunities as SMEs increasingly outsource IT. This merger strategically positions us to take advantage of all the aspects of the Third Wave of computing, as the real power of computing moves from the desktop to the network."

The transaction will be accounted for under purchase accounting, and will be tax-free to Interland's shareholders. Under the agreement, Micron Electronics will acquire Interland in an all-stock deal giving Interland shareholders approximately a 30-percent interest in the new company, subject to adjustment at closing under certain circumstances. Based on the closing price of Micron Electronics stock on March 22, 2000, the deal is valued at approximately $130 million.

Management expects pro forma revenues for fiscal year 2002 (ending August 31, 2002) of $160 million to $180 million. The companies expect to realize approximately $20 million to $30 million in total cost synergies in the first year. And management intends to reach EBITDA breakeven by the second quarter of fiscal year 2002, and cash flow positive three quarters later.

"Combining forces with HostPro is clearly a win for both companies, securing our spot among the leaders moving forward, as consolidation in the hosting market continues to take flight," said Interland CEO Ken Gavranovic. "We will now have the necessary financial means to execute our strategy with a fully funded business model as well as additional cash resources – a rare find among most hosting providers today."

The merged company will be led by a management team consisting of top executives from Micron Electronics and Interland. Upon completion of the merger, Micron chairman and CEO Joel J. Kocher will become chairman and CEO of the new company, and Interland CEO Ken Gavranovic will become vice chairman.

The board of directors of the combined company will have eight members, three from Micron Electronics' current board, two Micron Technology representatives, two Interland representatives, and one new member selected jointly by Micron Electronics and Interland.

The merger is subject to the approvals of Micron Electronics and Interland shareholders, as well as Hart Scott Rodino and SEC review. The companies anticipate that the merger will close in the summer of 2001.

Micron Electronics to Sell Non-Hosting Businesses
Micron also plans to sell both its non-hosting businesses, MicronPC.com and SpecTek, positioning the company as a pure-play hosting company. "We've been in a transformation process for two years, and have discussed for some time our belief that our best opportunity for returning shareholder value is in our hosting business," said Kocher. "With the recent drastic downturn in the economy and the PC industry, we have decided to focus our resources exclusively on growth opportunities in the hosting business."

As a result, the company announced it has signed a non-binding letter of intent to sell its PC business to a large, private, technology-equity-investment firm. The agreement, when completed, would provide the funding and resources required for MicronPC to become an even stronger solutions provider, according to Mike Adkins, MicronPC Direct Division president.

"As Micron Electronics directs its corporate focus solely on its hosting business, the sale of the PC business gives MicronPC an opportunity to sharpen our focus as well," said Adkins. "The MicronPC management team remains totally committed to providing the best products, services and support with customized solutions for our customers, and will do everything we can to vigorously compete in the marketplace."

Finally, Micron Electronics today announced that pursuant to the terms of its component recovery agreement with Micron Technology Inc. (NYSE: MU), MTI has exercised its right to purchase the assets of SpecTek. The business will be transferred to MTI effective April 6. In addition, MTI will acquire certain real estate and intellectual property. The net result of the combined deal gives Micron Electronics approximately $42 million dollars after paying existing SpecTek profit sharing obligations to MTI.