The Blue Laser : Sale of Prized Helionetics Division Sparked Fierce Bidding by Katz, Others

Bernard Katz fought hard to keep control of the prized blue laser division he helped assemble at Helionetics. But in the end, he lost it.

The blue laser--which emits beams of light the color of the ocean--was once considered the crown jewel of Helionetics. Company officials touted the technology as having significant military and commercial potential.

In 1983, for example, the former head of Helionetics’ laser division predicted that the company’s laser sales to the military alone could reach $1 billion by 1993.

In August, 1987, U.S. Bankruptcy Judge John E. Ryan appointed a trustee to conduct a sale of the laser division after a group led by Katz, who already owned 45% of the unit, offered to purchase the remainder of the business.

Sale to Katz Opposed

Helionetics’ second-largest creditor, Downey Savings & Loan Assn., vigorously opposed the sale to Katz, contending that his offer was far too low.

“The laser was something that was touted as a potential great unknown, something that could be incredibly valuable,” said a Los Angeles attorney closely involved with the sale of the division. “When you are involved in a highly secretive research and development project, you can say something is worth millions or hundreds of millions or whatever.”

The division has been working on research contracts with the Navy to develop a laser system for transmitting secret data to submarines. The laser could eliminate the current need for submarines to surface in order to communicate--and thus possibly reveal their location to an enemy.

Those involved with the sale describe how Katz struggled to beat out rival bidders. Katz’s partner in the proposed sale was Jack Martinez, who was president of the laser unit.

“They were trying to buy the laser division on the cheap, and they were playing every game they could to make it impossible for anyone but them to buy it,” a scientist for one of the bidding groups said.

Katz declined to be interviewed about Helionetics or its laser unit.

Warning to Bidders

The Katz group tried to persuade the court and other potential bidders that the team of top research scientists that Katz had assembled--and who were vital to ongoing research at the laser unit--would quit if anyone but Katz bought the division, according to several people involved in the bidding.

“That really had a chilling effect on the bidding,” said the Los Angeles attorney. Several large aerospace and defense companies were scared away by the prospect of losing key researchers, he said.

But two bidders decided the laser unit was worth the risk.

“We thought the likelihood of the scientists leaving was nonsense,” said a source associated with one of the bidders, Twenty-First Century Venture Partners, a venture capital group. The group’s scientific advisory board included physicists Edward Teller, a former Helionetics director, and Wilson Talley, a former Helionetics chairman.

General Dynamics, the St. Louis-based defense giant, also joined the bidding and eventually acquired the San Diego laser business in October, 1987, for $4.2 million. Most of the key scientists remained with the laser unit.

Successful Test

Last month, General Dynamics in San Diego announced that its Laser Systems Laboratory had successfully completed a test of the high-energy laser system for the Navy’s classified Project Y-Blue program. In the test, an airborne Navy P-3 Orion aircraft equipped with the laser system was able to receive a message from a submerged submarine, General Dynamics said.

“This is an important breakthrough,” said Tony Zuppero, General Dynamics’ program manager for the blue laser program. “Over the long term, there could be diverse applications, although we don’t foresee any big profits early on. What we see is something the Navy really needs.”