Silicon Graphics International Corp. (NASDAQ: SGI)’s decision to sell itself to Hewlett Packard Enterprise Co (NYSE:HPE) is now generating more heat than light. A number of shareholder rights attorneys have announced that they are investigating the deal to see if there was a breach of fiduciary duty by the board of SGI.
In a transaction such as the one that Silicon Graphics International Corp. (NASDAQ: SGI) has entered into with HPE, the board is required to adequately shop for the company so that shareholders can get the best possible deal. But shareholder rights attorneys at WeissLaw LLP and Rigrodsky & Long, P.A. have reservations with the buyout agreement that SGI has entered into with HPE.
The attorneys suspect that the board of Silicon Graphics International Corp. (NASDAQ: SGI) didn’t maximize shareholder value by agreeing to sell the company to HPE for $275 million, which translates to a valuation of $7.75 per share.
What’s the basis of the complaint?
First, the shareholder rights attorneys pointed out that the $7.75 per share price that HPE is paying for SGI is inferior to the price target of $8.50 that one analyst has on the stock of SGI. Furthermore, the attorneys noted that the price that SGI is being offered is less than $7.79 at which its shares traded as recently as January 2016.
Other than the price being offered appearing to be lower than what SGI seems to be worth, WeissLaw LLP noted that improvement in the financial performance of SGI in F4Q2016 and fiscal 2016 seem to have been overlooked in the buyout valuation.
How Silicon Graphics International Corp. (NASDAQ: SGI) fared in F4Q and F2016
Silicon Graphics International Corp. (NASDAQ: SGI) posted a profit of $100,000 in F4Q2016, which translates to breakeven per share. That indicates an improvement from a loss of $0.28 per share in a similar quarter last year. However, quarterly revenue declined 20%.
As for the year, SGI reported that revenue in F2016 increased by $12 million over the previous year’s revenue to $533 million.
If you look at these results, the attorneys seems to believe that some things are not adding up properly, thus the need to investigate the deal.
The board of Silicon Graphics International Corp (NASDAQ:SGI) has not commented on the investigations. But trading in SGI shares immediately the news about the deal reached the market signaled that investors consider the buyout price reasonable.