Frank Borman’s New Challenge : Laser Firm Hopes Chairman’s Fame Helps Its Fortunes
Frank Borman has had quite a career. Fighter pilot, astronaut who circled the moon on the Apollo 8, head of Eastern Airlines for a decade.
Borman, 60, now has a new job: chairman of Patlex Corp., a small laser company in Chatsworth, and at first glance his credentials seem out of place there. But a closer look indicates that Borman’s experience and fame might be the right stuff for Patlex.
The company makes lasers but is better known as the outfit that helped laser pioneer Gordon Gould secure several major laser patents last year. Patlex gets 64% of the licensing income from those patents because it financed the last nine years of Gould’s 30-year legal struggle to get the patents.
Consequently, Patlex and Gould now are using the threat of patent-infringement suits to coax other laser producers or users to sign licensing agreements and pay royalties. Already, Patlex’s share of the laser licensing fees--including back royalties some companies were forced to pay--accounted for about $5 million of its $17 million in revenue last year.
Last month, Patlex announced plans to spin off its manufacturing operations into a new, as yet unnamed company by November. Borman, whose job pays $50,000 a year, was picked to head the remaining licensing business.
Patlex estimates that 200 companies need to be licensed to legally use the technology, and 64 have signed to date, including such big names as American Telephone & Telegraph, International Business Machines and Eastman Kodak.
But the two biggest U.S. manufacturers of lasers, Spectra-Physics in San Jose and Coherent Inc. in Palo Alto, have yet to sign, and neither side will say what’s holding things up.
Whatever the cause, Borman’s job is to sign Spectra-Physics, Coherent and the other companies. Then he must decide what Patlex will do with the growing cash stream the licenses will create.
Worldwide sales of non-military lasers will total roughly $650 million this year, said Richard Samuel, who preceded Borman as Patlex’s chairman and will become head of the spun-off manufacturing company. About $150 million of those sales involve lasers that don’t come under the Gould patents, and about half of the remaining $500 million are U.S. sales, he estimated. The Gould patents apply only to U.S. and Canadian sales.
Spectra-Physics, a unit of Ciba-Geigy Ltd. of Switzerland, and Coherent together account for about 20% of the industry’s sales, Samuel said. Licensing those two companies could roughly double Patlex’s current annual revenue from patent licenses to about $6 million a year, Samuel said.
Left in 1986
That figure could climb further, to “the $10 million range,” once all 200 companies are licensed, he estimated.
The bigger Patlex’s royalties, of course, the more Borman has to invest. Yet professional money management was hardly Borman’s calling in life. In addition, during Borman’s last six years at Eastern--which were marked by constant wrangling with Eastern’s labor unions--the airline lost $415 million. Borman resigned as Eastern’s chairman in June, 1986, when Texas Air Corp. bought the carrier.
But Borman, who has been a Patlex director since April, said in a telephone interview from his home in Las Cruces, N.M., that the “corporate experience I got at Eastern will be helpful.” He also noted that all final investment decisions will be made by Patlex’s full board.
Even if Borman isn’t a renowned investment whiz, he still might be able to clear the Spectra-Physics/Coherent logjam and otherwise aid Patlex’s licensing program if only because his celebrity and experience can help open doors.
“It definitely helps,” Samuel said. But he also said Borman was hired not because he’s famous, but because “we believe that he, as a person, is competent to do this role.”
Borman’s reputation and experience with the military and the rest of Washington also are major assets, said money manager Christopher A. H. Lewis of MacKay-Shields Financial Corp. in New York, which owns about 350,000 Patlex shares.
“We’re talking potentially $10 million in royalties (annually) from the government, and if Borman can be instrumental in getting that, he’d add tremendous value to the company,” Lewis said. “I think it’s a brilliant move.”
By law, sales of patent technology such as lasers to the federal government are not subject to royalties, Samuel said. However, a company can file a claim or negotiate to receive licensing fees in some cases, and Patlex has filed just such a claim.
Borman, a retired Air Force colonel, discounted his fame and government experience as being crucial to Patlex. But he acknowledged that they could help.
Still Called Colonel
“The fundamental asset of Patlex is the fact that the patents have been defended in lawsuit after lawsuit,” said Borman, who will work in Chatsworth one day a week. “But it has nothing really to do with contacts or notoriety, except it might be able to hasten the process.”
As for his Washington connection, Borman said, “I haven’t had a government job for 17 years.” Some associates still call him Col. Borman, however.
Samuel said the company sought “somebody who is a generalist, who can be objective” in finding ways to distribute Patlex’s income, as opposed to a money manager who “would have a history of liking this kind of investment or that.”
Borman said he also would get help from people like Kenneth G. Langone, an investment banker and Patlex director who first recommended that Borman buy Patlex stock about five years ago. Borman still owns or has options to buy a total of 7,500 Patlex shares, which is less than 1% of the total outstanding.
Patlex’s common stock closed Monday at $12.25 a share, down 21% for the year to date. By contrast, the NASDAQ composite index of the over-the-counter market, where Patlex stock trades, is up 17% this year.
How quickly can Borman can help Patlex sign Spectra-Physics and Coherent? Borman said only that he’s “confident that a fair arrangement will be worked out.” Spectra-Physics and Coherent declined comment.
Even if those companies do sign, Borman still must propose what to do with the money, and he has offered no specifics. Given Patlex’s decision to shed its manufacturing lines, it’s unlikely that it will buy another company to run. But it could buy real estate, provide venture capital, repurchase its stock or pay its stockholders a fat dividend.
Indeed, Lewis wants Borman to push for a big cash dividend to reward longtime Patlex holders who risked their money on the chance that Gould would win his patents. “We don’t want to see the rewards going down the drain in some other new venture.”