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Violin Memory Changes Its Tune

NEW YORK (The Deal) -- Investment bankers figuring out how much to price an initial public offering at usually try to do right by their client, both on the upside and on the potential downside.

It's a question of striking the right balance. Either the range tends toward underpricing, so that the company ends up with less than it should by rights expect; or overpricing, leaving the underwriter with unsold shares and, possibly a damaged image for its client in the market debut, as was famously Morgan Stanley's dilemma in taking Facebook (FB) public.

But if the company and its bankers know offers are already on the table, that might have unintended effects on the newly public company.

Such may have been the case with computer flash storage drive maker Violin Memory (VMEM - Get Report) which had suitors knocking at the door prior to its September IPO -- and still does, according to someone familiar with the situation. Buyout interest around Violin has increased even more so now that the company has jettisoned its founder and CEO and brought in an executive with all the earmarks of someone well-versed at selling tech companies.

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The companies that had been talking to Santa Clara, Calif.-based Violin Memory include some of the biggest in enterprise technology service providers: Hewlett-Packard (HP - Get Report), Seagate Technology (STX), IBM (IBM), Samsung Electronics Co. and EMC (EMC), an industry source said. At least one had gone so far as to provide Violin Memory with a term sheet, albeit one that was contingent on due diligence and hedged with conditions, the person said.

Violin Memory did not respond to a request for comment. Hewlett-Packard and Seagate said it was company policy not to comment on rumor or speculation. Samsung could not be reached for comment, while IBM and EMC did not respond to requests for comment.

In fact, Hewlett-Packard already had an agreement in place to resell Violin Memory products, but the company ended the arrangement in the fall of 2012, ostensibly in favor of the 3Par products it acquired in 2010 as part of a $2.3 billion deal.

Despite the buyout interest, Violin went public in September. Barely three months later, founder and CEO Donald Basile was let go by his board.

The IPO was rocky. After pricing at $9 per share on Sept. 26 to raise $162 million before expenses, the stock opened at $7.50 and closed at $7.02 on its first day of trading.

Making matter worse was Violin Memory's first earnings report as a public company: a net loss of $34 million for the third quarter of 2013 on revenue that was up 37%, to $28.3 million, year-over-year as compared to a $25 million net loss for the same period a year earlier. (The company has yet to turn a profit.)

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