Internal Squabbles Put Micom Systems on the Sales Block
In the late 1970s, Micom Systems was known as the orange juice company.
The nickname came from an advertisement that the Simi Valley company, which makes equipment that links computers so they can talk electronically to each other, ran in trade magazines. Featuring a can of orange juice concentrate with Micom’s its name on it, the ad encouraged computer users to “squeeze” data through their computer systems using Micom equipment.
Now, Micom is trying to squeeze something else--value out of the company for its beleaguered shareholders. The 15-year-old company is up for sale, the result of a squabble between its founder and major shareholders on one side and its management on the other.
Raymond V. Thomas, the company’s chief financial officer, said more than 10 parties have shown an interest in the company. Within a month, he said, Micom expects to narrow the list to a few serious contenders.
So far, the company’s stock price has settled at slightly less than $16 a share in over-the-counter trading, which makes the company’s overall value in the stock market at about $300 million.
Most securities analysts speculate that Micom’s sale price will probably be slightly higher than $16 a share, with the highest estimates at $18 to $20 a share. On Monday, the stock closed at $15.875 a share.
Unhappiness in the Company
The sale of Micom stems from unhappiness by dissident board members John and Sally Thornton of San Diego, who have helped finance Micom, and company founder William Norred, who now develops real estate. Norred stepped down as chief executive in 1985, succeeded by Roger L. Evans, a Cambridge-educated native of Great Britain who joined the company in 1976.
Evans was unavailable for comment. John Thornton could not be reached for comment. Norred did not return messages left at his office.
Together, the Thorntons and Norred own about 4.2 million Micom shares, or roughly 22% of the company’s stock.
Little has been said by the company or the dissidents about what brought about the disagreements, but analysts have suggested two reasons.
One was the acquisition last year of Spectrum Digital of Herndon, Va., at a cost of $19.4 million in cash and stock. Several securities analysts believe Micom paid too much.
The other reason suggested is Micom’s tumbling stock price, which dropped from a high of nearly $50 a share in early 1984 to a low of $6.50 a share last fall after the October stock market crash. Micom’s stock, bolstered by improved earnings and the news that the company probably will be sold, has recovered some since then.
To rid the company of the dissidents, Micom disclosed in March it would buy the 4.2 million shares they held for $16 a share, as well as another 4.8 million at the same price from the public. The additional purchases were to avoid the appearance Micom was paying the dissidents “greenmail,” slang for paying certain shareholders a premium price for their shares.
According to securities analysts, the buyback upset some stockholders because the $144 million cost of buying the 9 million shares would have burdened the company with too much debt.
“It would have been very costly for the company to proceed. It didn’t make a lot of sense to me,” said Andy Schopick, an analyst with Gartner Securities Corp. in Stamford, Conn.
Within a month, the buyback was a moot point. Micom had canceled the offer, and said at least two parties had expressed interest in buying the company.
What makes Micom attractive to buyers is that the company has little debt, only about $6 million, and has $56 million in cash and short-term securities.
In addition, Micom has used cost-cutting for the past three years to boost its earnings. For the year ended April 3, Micom’s earnings more than tripled to $9.8 million from $2.6 million a year earlier. Sales rose 12% to $223.4 million.
Micom also owns a healthy catalogue business in which it sells businesses equipment and accessories linking computers and related equipment. Catalogue sales amount to about $75 million a year. Although Micom doesn’t break out the earnings for that specific business, it is said to be highly profitable.
Analysts are uncertain who might want to buy Micom. One name frequently mentioned is Digital Communications Associates, an Alpharetta, Ga.-based maker of equipment that links personal computers to mainframe models.
Last September, Micom rejected a bid from a suitor it refused to identify, which is believed to be Digital Communications.
One possible scenario, analysts said, is that Micom could be taken private by its management through a so-called leveraged buyout. In a leveraged buyout, money is borrowed to buy the shares held by the public and paid off through such means as the sale of assets or money generated from operations.
1988 STOCK PRICE FOR MICOM SYSTEMS
MARCH 30: Micom discloses plans to spend $144 million to buy back nearly half of its stock, including shares held by three dissident directors.
APRIL 26: Micom cancels a stock buyback; discloses that at least two groups are interested in buying it.
