Silicon Graphics, a developer of visualization, servers and storage products, will be acquired by Rackable Systems for $25 million.
Rackable Systems, a Freemont, Calif.-based provider of storage systems for data centers, said it will acquire almost all assets of Silicon Graphics with cash, but only conditionally. Rackable said it has dropped plans to purchase up to $40 million of the company's stock as it had previously announced.
"The way that we'll complete the combination will be a little unique, but given today's economic environment, this approach will give us the desired result in the shortest amount of time," Silicon Graphics CEO Robert "Bo" Ewald wrote to customers in a letter.
SGI, based in Sunnyvale, Calif., will have to meet certain conditions before the acquisition is completed, expected to be in 60 days.
Before Rackable can acquire SGI, the U.S. Bankruptcy Court must approve SGI's filing. SGI will go through a Section 363 process, which will allow Rackable to acquire SGI without assuming its debt.
SGI's international business will be part of the sale but is not part of the bankruptcy process. All 14 of SGI's subsidiaries, however, are part of the process.
Rackable is using the acquisition to increase its global-services business and help bring itself to profitability after five consecutive quarterly losses.
SGI has been struggling for some time and blames its problems on its last experience with bankruptcy protection, The Wall Street Journal reported.
In December, the company announced it would reduce its workforce by 15 percent, or 225 positions. The cuts, which included several executive and senior-level positions, were expected to take place in the first half of 2009.
In its latest petition for Chapter 11 protection, SGI reported $390.5 million in assets and $526.5 million in debt.
The proposed acquisition is expected to turn both companies around.
"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."
Ewald echoed Barrenechea's comments in his letter to SGI's customers.
"We have been working very hard to strengthen our company, and today we've taken another big step in that direction," Ewald wrote. "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 market reach."
Together the companies plan to provide a wide range of products, including built-to-order clusters and a new ultraviolet shared-memory system currently under development.