Cipher Data Agrees to Buy Unit of Xerox

Cipher Data Products has agreed to pay $6.3 million in cash and as much as $8 million in notes and royalties for a 90% interest in Optimem, a Xerox Corp. subsidiary in Sunnyvale that produces optical disk drive products, company officials said Wednesday.

The acquisition is “consistent” with Cipher’s strategy of remaining a “major supplier of removable-media storage devices and subsystems,” according to Cipher Chairman and Chief Executive Don M. Muller.

Cipher Data paid “a very fair price” for Optimem, Michael Murphy, editor of the San Francisco-based California Technology Stock Letter, suggested. “No one’s going to say they paid too much. Although the acquisition is not going to have a dramatic near-term effect on Cipher, it was a very intelligent strategic move.”

By acquiring Optimem, Cipher Data will be able to “participate in pioneering disk drives that focus on removeable media,” Muller said.

Optimem, which began shipping products in 1984, reported annualized revenues of $3 million, according to Gary Liebl, president of Cipher Data. He predicted that the company will generate between $14 million and $18 million in the next 12 months.

Sees High Returns

Although Cipher had been involved with the growing optical disk drive technology through what Liebl described as a “very confidential, proprietary development effort,” he suggested that Optimem gives Cipher the ability to garner “revenues which will grow at extremely high compound growth rates starting in our 1988 fiscal year.”

Optimem’s Peter A. Lloyd will remain as president and chief operating officer and a member of the board of directors.

Xerox characterized the sale of Optimem as in keeping with its “long-range strategy to concentrate on the principal areas of its business.”

Xerox will retain a 10% interest in Optimem and will have a seat on the company’s board of directors.