Violin Memory bidding adieu in a bankrupt auction

Note from Editor:

We have always known that Violin products and technology are sound. We have also long warned that their finances and business model were not sound and we are not surprised when they basically burned through their cash. At the time, we felt with the strong technology Violin would be 'picked up' by someone and anyone who had made an investment would not be left completely hanging. However now is the time to sit back and understand who has bought Violin and what their plans might be. It is a reminder that when choosing emerging technologies from newer companies, don't ignore their performance and speak to their existing customers to get a feel for whether their business is sound. Finally, look to press and analysts (ourselves included) as it is our job to highlight the good and the bad in the companies we cover to keep our readers better informed.

Full story follows:

Weeks ago, Violin Memory announced that it has embarked a process to reorganise its operations and balance, while simultaneously pursuing a sale of its business to a buyer that is committed to supporting its core customer base. 

In doing so, Violin Memory has filed a voluntary petition for reorganisation under chapter 11 of the U.S Bankruptcy Code in the Bankruptcy Court for the District of Delaware, and is looking to hold an auction in early January for the business.

Just this Monday, Violin Memory said its sale effort has led to a restructuring deal with an affiliate of George Soros’ Quantum Partners.

Set up under Soros Group, VM Bidco LLC, provided a winning plan or reorganisation bid valued at $14.5 million, following a three-day auction and it fought off VMA LLC, ESW Capital and others. Violin Memory attorney, Deryck Palmer, of Pillsbury Winthrop Shaw Pittman, said the details of the plan were still being worked out.

When Violin Memory failed and filed for Chapter 11 bankruptcy protection, its market capitalisation was only $1.5m, having been $8.5m in October 2016.

The Soros Group believe there are ways to recover more than $14.5m from the losses of Violin Memory. It is an unsecured creditor of Violin and its bid includes swapping debt for equity, and funding the reorganisation of Violin Memory through debtor-in-possession financing.

Soros Fund Management is a family-controlled investment group, being one of the most profitable hedge funds in history. If the bid is approved, Violin Memory will move into private equity ownership and will likely face restructuring and eventual sale.

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