New Chairman : Computer Memories Searching for a Future

Computer Memories, once one of the nation’s largest makers of data-storage equipment for personal computers, may have a future cleaning up toxic waste.

Or in the savings and loans business. Or in defense work. Or in just about anything else.

In other words, the future of the Chatsworth company is as unclear as it was when its directors decided nearly two years ago to stop making computer equipment after it was dropped as a supplier for IBM’s PC-AT personal computer. After that decision was made, most of the company’s assets were sold at an auction, and a search was launched that continues today for either a buyer or a company to acquire.

Now, Computer Memories has new management. The leader is Paul O. Koether, head of a dissident shareholder group from New Jersey that has successfully opposed previous attempts to merge Computer Memories with entertainment companies Hemdale Film and DIC.

Koether was elected chairman last week, replacing Irwin Rubin, who joined Computer Memories in 1980 when it was a year old. Koether and two of his associates now hold three of the five seats on Computer Memories’ board of directors.

Founded in 1979, Computer Memories’ sales grew sevenfold from 1982 to 1986 because of a contract supplying IBM with hard-disk drives, the equipment that records and writes data on rigid disks for personal computers.

Computer Memories’ dependence on IBM for business, however, is also what resulted in its downfall. In the year ended March 31, 1986, sales to IBM accounted for nearly 80% of Computer Memories’ $116 million in revenue. Computer Memories’ revenue plunged to $5.3 million and manufacturing was halted the next fiscal year when IBM stopped buying its products.

$21 Million in Cash

Koether said the company will have about $21 million in cash after it finishes paying off the settlement of a shareholder lawsuit. It also has available some $12 million in tax benefits that federal tax laws might allow it to use if it buys another company. In addition, its status as a publicly held company makes Computer Memories attractive to some private companies seeking to go public without an initial public offering of stock.

Koether said he finds companies in the environmental businesses, such as those that clean up hazardous waste, interesting as possible merger candidates. He also said he will consider companies in the savings and loan business and the defense industry.

Still, he was vague in discussing the kind of company he wants. The only criteria, he said, is that Computer Memories gets a good deal.

“We want to look for what’s hard to find, which is a bargain,” Koether said. He said he and others on the board of directors are aggressively looking for potential merger candidates.

“It’s not like we are sitting back in a corner waiting for a bargain. We’re out there every day,” Koether said.

Koether was asked by one shareholder what assurance stockholders have that the company’s funds won’t be squandered during the search for a merger. Koether responded by noting that his group has invested $6 million in buying more than 26% of the company’s stock and that the five company directors own 42% of the shares.

“There’s no point in us milking our own money,” Koether said.

Rubin, who owns 4.4% of the stock, continues to collect a $185,000-a-year salary until Jan. 31. He said he is a partner in a Glendale company he is running that supplies parts for disk drives used by companies such as Unisys Corp.