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Wednesday, May 3, 2006 - Page updated at 12:00 AM

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Blockbuster price for ADIC

Seattle Times technology reporter

ADIC received a handsome reward Tuesday when San Jose, Calif.-based Quantum agreed to purchase the Redmond company for $770 million.

Under the deal, Advanced Digital Information Corp. stockholders would receive $12.25 a share, or almost 50 percent over the stock's Tuesday trading price of $8.27. They would also have the option of trading in each share for 3.461 shares of Quantum stock. Only 10 percent of the purchase price would be doled out in stock.

It is unclear how the deal would affect ADIC's 1,200 workers, including 250 in Redmond.

The transaction, which both companies' boards have approved, is subject to ADIC shareholder and regulatory approval and is expected to close by September.

Both Quantum and ADIC sell computer storage systems for backing up information. Quantum, which also sells tape drives, focuses on smaller companies; ADIC mostly sells to large enterprises.

For a good portion of the past decade, ADIC invested millions of dollars in research and development, sales and marketing when other companies were cutting back. And for that, it made less money.

But yesterday the at-times unpopular plan paid off.

"It's a terrific premium. Anyone holding ADIC shares will be pretty happy," said Brian Freed, an analyst with Morgan Keegan. "I think they [Quantum] are overpaying for ADIC."

Freed said the deal compares to Sun Microsystem's purchase of Storage Tek last year for $4.1 billion.

The sale will benefit a lot of large shareholders. Based on number of shares owned Jan. 26, ADIC Chairman and Chief Executive Peter van Oppen will make about $8 million on the deal; John Stanton, the former CEO of Western Wireless and VoiceStream, will take in $38.3 million; and Tom Alberg, managing partner at Madrona Venture Group, will make about $2.8 million.

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Quantum has 2,400 employees, double the number at ADIC. But because the two businesses complement each other in many ways, it's unlikely there will be drastic cutbacks, the companies said.

Both sides said changes in the Redmond operation are possible, but details have not been worked out.

Quantum is a relatively decentralized company, with only 45 of its employees working at its San Jose headquarters.

"The way this works financially is that you eliminate duplication," said Rick Belluzzo, Quantum's chairman and chief executive, who will hold the same position in the combined company. "We have a really good pattern of picking the best people. We are creating a new company and we are going to draw from both companies to create a new company. It isn't clear where those changes will come from."

Quantum expects to save $45 million in its first year of combined operations. It also expects to triple its sales force with the addition of ADIC's sales team.

"We are strong where they aren't, and they are strong where we aren't. We think it's important to have scale in the storage business today," van Oppen said. "You have to have the resources to deliver."

Belluzzo, who is familiar with Seattle as former president of Microsoft, said he didn't know ADIC until he joined Quantum in 2002 and visited van Oppen. He approached ADIC about a merger.

"I think both companies have been in similar positions," Belluzzo said. "We are working aggressively to achieve success and we need more scale," he said, adding that both companies can accomplish more together than separately.

Quantum will fund the transaction through a combination of cash on hand and a financing commitment from KeyBanc Capital Markets.

Quantum also reported financial results Tuesday for the quarter ended March 31, the company's fourth quarter. It saw a net loss of $23 million, or 12 cents a share, on revenue of $206 million. Revenue was down 14 percent from the same quarter a year ago.

ADIC is scheduled to release full second-quarter results May 18, but said revenue is expected to be between $115 million and $117 million, or up about 10 percent versus the same quarter last year.

Quantum's stock closed at $3.48 Tuesday and dropped only slightly in after-hours trading, to $3.40 a share.

ADIC's stock closed at $8.27 and rose sharply after hours to $11.90.

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

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