Electronic Memories and Titan Systems Plan Merger

Electronic Memories & Magnetics Corp. of Encino and La Jolla-based Titan Systems International Inc., two small defense contractors, agreed to merge Monday in a stock transaction valued at about $26 million at current market prices.

Under the merger agreement--which is subject to execution of a definitive agreement and other conditions--about 4.2 million shares of EMM’s stock would be issued to shareholders of Titan, 98% of which is owned by its 350 employees.

Electronic Memories’ stock closed Monday at $6.25 a share on the New York Stock Exchange, up 37.5 cents, on volume of about 72,000 shares.

Although the two companies both specialize in manufacturing memory and computer products for highly classified military use, their recent financial performances have been strikingly different.

Electronic Memories & Magnetics, a 16-year-old company with 2,100 employees, has watched its revenue and earnings decline over the last four years.

After posting net income of $3.34 million on revenue of $79 million in 1983, earnings for the first nine months of 1984 declined, reflecting lower third-quarter shipments to the military and losses on certain long-term contracts that were transacted in the weakening British pound.

Full-year results are not in but, for the first nine months of 1984, EMM had net income of $1.5 million on revenue of $63.1 million, said Rolf Erikson, vice president of corporate development.

Meanwhile, Titan--which started in May, 1981, with an initial capitalization of $120,000 in a suburban Washington home--has been growing at a brisk pace.

For the fiscal year ended Oct. 31, 1984, Titan reported net income of $1.2 million on revenue of $24.3 million, more than double the revenue and earnings in 1983.

The company has benefited in part from defense contract work on the MX missile, the cruise missile, research into the directed energy weapons of President Reagan’s “Star Wars” defense, artificial intelligence, as well as equipment with possible civilian applications, such as a monitor that can measure a person’s heart rate through four inches of clothing.

Under the proposal, Titan’s founder, Gene W. Ray, would head the newly merged companies. Ray, a physicist by training, said he plans no major management changes after he assumes the post of president and chief executive.