PC maker Micron Electronics (MUEI) said today that it would acquire network server manufacturer NetFrame Systems (NETF) for $14 million--a move that didn't sit well with NetFrame investors, who immediately dumped the stock.
NetFrame's share price plunged 26 percent today to close at 31/32 of a point, down 11/32 from yesterday's close. Micron's stock, meanwhile, hovered near yesterday's close and ended the day at 16-5/8, down 3/8.
Under the proposed deal, Micron will pay $1 in cash for every share of NetFrame. The acquisition is designed to provide Micron with immediate entry into the rapidly growing, high-end enterprise server market.
NetFrame revamped its servers to use industry-standard technologies last April, abandoning its midrange Intel-based server systems with proprietary features. The strategy was an attempt to increase its share of a higher-volume market by moving away from proprietary technology.
The move may give a boost to Micron, which last month said its third-quarter sales will be about 10 percent below the previous quarter's. It blamed recent price cuts on its PC systems and start-up costs for its international operations.
Micron itself had long been rumored to be a takeover target for Compaq Computer. Some investors were openly opposed to such a deal because of Micron's relatively small market share and its disparate business operations, which involve everything from chip manufacturing to mail-order computers.
"It doesn't make a lot of sense. Micron is a no-name clone. Gateway made sense," said Jeff Matthews, general partner at Greenwich, Connecticut-based investment firm Ram Partners. "[Compaq] would have to spend a lot of money for a business with a lot of problems."
Today's announcement is likely to push the possibility of a Compaq buyout further into oblivion.