The news pleased Wall Street; the company's shares soared more than 8 percent in morning trading.
"Our intention is to form a business combination with Read-Rite that creates value for the shareholders of both companies," said Craig D. Crisman, chief executive of Applied Magnetics, in a statement. "Accordingly, we would not structure or engage in a transaction that is dilutive to the interests of Applied Magnetics."
The companies are head-to-head competitors as makers of recording heads for disk drives.
Applied, which bid 0.679 of its common shares for each share of Read-Rite in a stock-swap deal February 24, has seen its stock fall by 30 percent since.
The stock, which was at 53 before the deal was announced, closed at 37 yesterday. However, shares this morning climb as high as 40.
Read-Rite's shares, meanwhile, have also lost ground. The company closed at 32 a share before the deal was announced but has edged down to finish the day at 30-5/8 yesterday. The stock was up a slight 3 percent in morning trading.
"This offer is still alive. Applied still feels this deal would give value to its shareholders," said Michael Bulger, a company spokesman.
He added he doesn't know if the stock deal will be sweetened with cash on top of the exchange.
But one analyst said the deal is dead.
"Their announcement tells me this deal will not occur unless there was some dramatic change in the perception of Read-Rite about the relative worth of merging the two companies, and that's not likely," said Ted Flomanhaft, an analyst with L. Flomanhaft & Co. in New York.
Earlier this week, Read-Rite rejected Applied's offer and put in place a poison pill that triggers the release of more company shares if a hostile bid occurs. Poison pills make it more expensive for the acquiring company, forcing them to purchase more shares than planned in the target company to gain control.
Crisman said he was "disturbed and disappointed by market misperceptions and disinformation" surrounding the growth of magnetoresistive technology and the prospects for advanced thin film heads.