Court Approves SGI Sale to Rackable

A federal bankruptcy court has given the go-ahead to Rackable's purchase of former Silicon Valley mainstay SGI, though it increased the price from $25 million to $42.5 million. Rackable expects to close the sale May 8. Rackable officials hope the deal will give them greater traction in the competitive HPC space as well as in such areas as power, cooling, visualization and shared storage. The deal is the latest consolidation move in the IT infrastructure space. Most notable is Oracle's $7.4 billion deal to buy Sun Microsystems.

A bankruptcy court in New York has given Rackable Systems the OK to buy all the assets of SGI, though for a higher price than originally offered.

Rackable initially had offered $25 million, but the court bumped the price up to $42.5 million. In addition, Rackable will have to assume SGI's liabilities.

The approval by the U.S. Bankruptcy Court in New York City April 30 means that Rackable will be able to close the deal for SGI by May 8, according to Rackable officials.

In an open letter to Rackable and SGI customers and employees, Rackable President and CEO Mark Barrenechea called the court's approval "fantastic news" for both companies.

"The combined business will be positioned to help customers in solving the most demanding business and technology challenges they confront today: whether that be powering the Internet, exploration of natural resources, meteorological modeling, enabling financial markets, and assisting government and security agencies," Barrenechea wrote. "The resulting company will have complementary, yet highly differentiated product lines and expanded service offerings, reaching commercial, government and scientific sectors. Not only will the combined businesses offer an exciting array of products; we will support our existing and new customers in over 20 countries."

Rackable officials will further discuss the deal when it announces its quarterly earnings May 5.

Rackable announced April 1 that it was buying SGI, when Barrenechea said during a conference call that the deal would help make Rackable a larger player in the HPC (high-performance computing) space. He also touted the research and development capabilities of a combined company around such areas as power, cooling, visualization and shared storage.

"This is a strategic fit with limited product and marketing overlap," he said April 1. "Relevant innovation is at the heart of this proposed deal."

The deal also marks the end for one of Silicon Valley's pioneers, a company that 15 to 20 years ago was selling massive machines worth millions of dollars. However, SGI was unable to adapt to the changing server landscape as businesses began adopting cheaper, smaller and increasingly more powerful x86 systems.

Rackable makes energy-efficient industry-standard servers and storage systems for midsize and enterprise compute environments.

SGI had been struggling for years and had drawn the interest recently of at least one other company. However, Charles Wuischpard, president and CEO of Penguin Computing, said in an interview in April that he was skittish about taking on the more than $100 million in liabilities that would come with buying SGI.

Wuischpard and industry analysts expect to see further consolidation in the IT infrastructure space. Most recently, Oracle announced it was buying Sun Microsystems for $7.4 billion, harbingering the demise of another Silicon Valley giant that also had difficulty adjusting to the new dynamics of the post-dot-com bust IT world.