Shell Company’s Fate Rests With Dissidents
The future of Computer Memories, the former computer parts maker in Chatsworth, is now largely in the hands of a dissident shareholder group from New Jersey.
The company stopped making products more than 18 months ago, and it is essentially a shell operation with no continuing line of business. Its stock, however, continues to trade, and the company has $24 million in cash.
For more than a year Computer Memories’ board of directors and investors have been battling over what to do with the company, which still has some value as a merger candidate. Two proposed merger deals with Computer Memories have fallen through in the last six months.
In each case, a private company was interested in grafting its operation onto what is left of Computer Memories as a way to go public cheaply and get its hands on Computer Memories’ sizable bank account.
Now Sun Equities, led by investors Paul and Natalie Koether of Far Hills, N.J., will control three of five seats on Computer Memories’ board of directors next month under a truce worked out with the company last week. Sun, which owns 25% of the company’s stock, gets two seats immediately and a third one next month at Computer Memories’ annual meeting. The date for the meeting has not been set.
Proxy Fight Threatened
The agreement comes after the Koethers threatened to launch a proxy fight--in which investors are solicited to vote for a slate of directors--to gain seats on the board.
“It was not in their interest or in our interest to burn up a lot of money,” Paul Koether said.
Although the Koether group will have three of five seats, it will still need four of the five votes from directors under the agreement to approve a merger or buy a company. The two seats that will not belong to the Koethers will be held by Marshall Butler, now a director of Computer Memories, and Seymour Leslie, an original investor in the company who is former chairman of MGM/UA Home Entertainment.
In an interview, Computer Memories Chairman Irwin Rubin said he will leave the board and resign as chairman at the annual meeting.
Rubin said he is uncertain what he will do after that. He continues to collect a $185,000-a-year annual salary until Jan. 31. He also is the company’s second-largest shareholder, after the Koether group, with 535,000 shares or 4.5% of the shares outstanding.
Three years ago, Computer Memories was one of the nation’s largest makers of hard-disk drives--the devices that magnetically read and write data on rigid disks in personal computers. The company primarily supplied parts for IBM’s PC-AT computer. In the year ended March 31, 1986, sales to IBM accounted for 79% of Computer Memories’ $116.2 million in revenue.
But, after IBM announced in 1985 that it was dropping Computer Memories as a supplier, the company ran into severe problems. Computer Memories sold off virtually all its assets 18 months ago.
The Koethers and their partners have tenaciously sought control of Computer Memories since they started buying its stock in late 1986. They were largely responsible for the scrapping of an earlier deal to merge Computer Memories with DIC, a Burbank cartoon producer, and also opposed an earlier merger plan with Hemdale, a Hollywood entertainment company best known for financing the Academy Award-winning film “Platoon.”
Although far from being in the same league with heavyweight corporate raiders such as Carl Icahn and Ronald Perelman, Koether and his wife have a reputation for being tenacious investors. The Koethers often work through an investment firm called Shamrock Associates (unrelated to Roy E. Disney’s Shamrock Holdings in Burbank). They frequently launch takeover bids and threaten proxy fights to the point where many executives pay them to go away.
For Computer Memories, Koether said, he hopes to soon find either a private company that wants to go public by merging with it, or an active company that Computer Memories can buy.
Buying a company, he said, might mean Computer Memories could use some of its tax-loss “carry forwards,” an accounting procedure in which a company can offset taxable income using previous losses. It is uncertain how much of those tax benefits--which Rubin said total more than $20 million--could be used because of recent changes in the tax laws.
