New Owners to Revamp Firm : Changes Begin at Micom Systems
One week ago, Micom Systems agreed to be bought for $16 a share, or $301 million, by the New York investment firm Odyssey Partners, ending Micom’s 15 years as an independent company. Already big changes are taking place.
Two of Micom’s top executives, Chief Executive Roger L. Evans and Chief Financial Officer Raymond V. Thomas, are planning to leave the company soon. In addition, Micom has agreed to sell its Micom Digital division in Herndon, Va., for $9.65 million, less than half the $19.4 million in cash and stock it paid to buy the business last September when it was called Spectrum Digital.
In all likelihood, those changes are only the beginning. Micom’s new owner is a savvy and respected investment firm based in a Madison Avenue office that has accumulated a net worth of more than $500 million, largely from buying companies and restructuring them by selling off parts of the businesses.
Documents filed Friday with the Securities and Exchange Commission indicate Odyssey plans to sell off a large amount of Micom assets within two years to help pay back money borrowed to buy the company. The documents say that the company is considering selling its Interlan business in Boxborough, Mass., which makes high-speed communications equipment linking computers and terminals in a single building.
“They’ll pick and choose which parts of the company they want to keep,” Micom’s Thomas said.
The SEC documents also reveal that the sale was a lucrative one for chief executive Evans. Under his agreement with the company, Evans received a $100,000 bonus related to the sale and is expected to receive another $500,000 bonus, which he is entitled to because the company was sold for $16 a share.
The fall of Micom as an independent company shows how far and how fast a company can fall in the unpredictable high-technology business, where products are new one moment and old the next. In the early 1980s, Micom’s sales and earnings were nearly doubling each year, and its stock was regularly recommended to investors by major brokerage houses. In late 1983 and early 1984, demand for the stock pushed its price up to nearly $50 a share.
Since then, the company’s financial performance was a disappointment to investors and Micom was put up for sale as a result of a feud among its directors over company strategy. The acquisition gives Odyssey a company that has been one of the nation’s leaders in making equipment that helps computers “talk” to each other.
Such equipment is particularly important to a number of businesses that bought computers in a haphazard manner during the explosion in the office computer business in the early 1980s. Companies are increasingly trying to link various computers in scattered offices to form a seamless electronic data network.
In addition, Micom runs a healthy catalogue business based in Pittsburgh that sells data communications equipment to businesses. That division is Micom’s jewel, and was the main attraction to suitors.
SEC documents indicate it is the company’s most profitable business by far. Projections in the documents show company executives expected it to account for $14.7 million, or nearly 70%, of Micom’s projected $21.2 million profit for its current fiscal year.
SEC documents say that Odyssey plans to keep that division and Micom’s Integrated Networking Group in Simi Valley, which specializes in making equipment that links terminals to computer networks.
Micom hit its peak in the fiscal year ended March 31, 1985, when the company earned an all-time high profit of $25.7 million on sales of $193.3 million. By contrast, Micom earned only $9.8 million on sales of $223.4 million in its most recent fiscal year ended April 3. While down considerably from three years earlier, Micom’s most recent profit was more than triple that of 1987, in part because of cost cutting.
Micom also emerged as one of the most important firms in the cluster of high-technology companies sprouting up in the west San Fernando Valley and eastern Ventura County areas in the late 1970s and early 1980s. Micom was founded in Chatsworth in 1973, long before the area’s orange groves and horse ranches gave way to concrete and steel industrial parks. In January, 1985, Micom became one of the first major companies to locate its corporate headquarters in Simi Valley.
But Micom faltered in 1985, in part from the computer industry slump and growing competition by rival companies making similar products. Adding to those problems were difficulties Micom had merging with Interlan, a company it bought in March, 1985. The company’s executives said they failed to smoothly mesh Interlan’s marketing staff with Micom’s, underestimated Interlan’s competition and created morale problems by overhauling what was a young company.
While this was going on, Micom’s stock tumbled. It fell from nearly $50 a share in 1983-84 to as low as $6.50 last fall after the October stock market crash.
“The stock was pretty much a disaster over the last few years,” said an executive with one New York-based pension fund that sold its shares earlier this year.
In March, a simmering dispute among Micom’s directors boiled over. The dissidents were William A. Norred, who founded the company and left as chief executive in 1985, and Micom’s largest shareholders, John and Sally Thornton of San Diego.
One point of argument was the company’s depressed stock price. The dissidents also reportedly believed that Micom paid too much for Spectrum, which was renamed Micom Digital, and makes equipment that allows voice, data and video signals to be transmitted digitally over high-speed telephone company circuits. Last week’s announcement by Micom that it would sell Micom Digital for less than half of what it paid, seems to confirm that belief.
Micom first tried to settle the in-house disputes by announcing in March it would spend $144 million to buy back 9 million shares of its stock, or nearly 50% of its shares outstanding, including those shares held by the dissidents.
The offer was scuttled when companies became interested in buying the company. Two New York firms, Warburg, Pincus Capital and Welsh, Carson, Anderson & Stowe offered to buy Micom for $15.62 a share, which would have been adjusted depending on the price that two of Micom’s businesses would have fetched. Odyssey then topped the bid with its $16-a-share offer.
Analysts disagreed over whether Micom shareholders got a good deal, a moot point now. Micom’s only other prospective buyer chose not to outbid Odyssey. Bruce Anderson, a partner with Welsh, Carson, Anderson & Stowe IV, said members of his group studied Micom thoroughly and concluded that Odyssey’s bid was more than what they were willing to pay.
“For us, it was not worth that,” Anderson said.
