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Why Silicon Graphics International Corp. Stock Popped Today

By Jeremy Bowman - Aug 12, 2016 at 11:43AM

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The veteran tech company was snatched up by Hewlett Packard Enterprise.

What: Shares of Silicon Graphics International Corp. (NASDAQ: SGI) were flying higher today after the hardware maker reported earnings and agreed to be acquired by Hewlett Packard Enterprise ( HPE -1.78% ). As of 10:53 a.m. EDT, the stock was up 28.7%.

So what: Hewlett Packard Enterprise will pay $275 million, or $7.75 a share, for its longtime competitor, scooping up Silicon Graphics at a time of weakness as the stock as been a consistent disappointment since the recession. HP Enterprise shares were flat on the news.

In its earnings report, SGI turned a profit of breakeven per share, while revenue declined 20% to $123 million. SGI CEO Jorge Titinger explained the deal, saying, "Our HPC (high-performance computing) and high performance data technologies and analytic capabilities, based on a 30+ year legacy of innovation, complement HPE's industry-leading enterprise solutions."

Now what: SGI's weak results seem to indicate that a buyout is in the company's best interest as it had not been profitable since 2013. The complementary business should help strengthen HPE, which expects the acquisition to be neutral to earnings in the first year following the deal and accretive thereafter. With SGI shares trading near the buyout price, investors seem to have a high level of confidence that the deal will go through. The transaction is expected to close in HPE's first fiscal quarter of 2017.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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