Bidder Hot on the Heels of Dataproducts : <i> John K. Castle is known as tough and tenacious. His target, a lagging computer printer maker, may find him difficult to shake. </i>
One of the nicknames given John K. Castle a few years ago by some of the people who worked for him on Wall Street was the “Doberman Pinscher.”
The inspiration for the nickname was Castle’s tough, intimidating way of running things at Donaldson, Lufkin & Jenrette, the Wall Street investment firm where he ran day-to-day operations as president for more than five years and served for nearly two years as chief executive. Some likened Castle’s abrasive management style to that of Gen. George S. Patton, citing occasional temper tantrums that resulted in telephone cords being yanked from walls.
Still, Castle, 48, is credited with making DLJ the most consistently profitable firm on Wall Street in the years leading up to its acquisition by Equitable Life Assurance Society of the United States for $460 million in November, 1984. Tired of running such a big company for an even bigger company, Castle resigned in 1986 to form his own investment firm, Castle Harlan Inc.
Valued at About $300 million
Whether the man once likened to a ferocious guard dog has a bark that is worse than his bite is something being pondered by directors of Dataproducts Corp., a Woodland Hills computer printer maker. In late December, Castle and partner Crescott Inc., a New York vending machine and food service company, disclosed that they own 5.2% of Dataproducts’ stock and may seek control of the company.
Castle and Crescott have indicated informally to Dataproducts that they might pay $15 a share to buy the company, which would put its value at nearly $300 million.
Those familiar with Dataproducts, the nation’s largest independent computer printer maker, are not surprised that the 26-year-old company may finally have attracted a bidder. For three years the company has been frequently mentioned by investors and analysts as ripe for a takeover bid because of its low stock price, substantial assets and poor earnings.
“We feel Dataproducts’ shareholders might be particularly well served by the sale of the company,” Castle said.
Castle met twice in October with Chairman Jack C. Davis. Castle said Davis listened cordially to his presentation but has since indicated that the company isn’t interested in being sold.
The company’s profits have been wildly inconsistent, with a $20-million loss in the fiscal year that ended March 26 on sales of $345 million, most of the deficit stemming from costs associated with closing a New Hampshire plant. In the six months ended Sept. 24, Dataproducts earned a paper-thin $2 million on sales of $174 million.
The company’s stock languished for most of last year at about $10 a share, well below the $31 that it traded at five years ago. The stock closed Friday unchanged at $13.50.
Made Fortune 500 List
Dataproducts sits atop a pile of assets that could be used to help finance a buyout, including an estimated $50 million in cash and 21 acres of land in Woodland Hills’ Warner Center, which some San Fernando Valley real estate experts believe could be worth from $25 million to as much as $45 million.
Dataproducts sells its computer printers to large computer equipment makers such as IBM, Digital Equipment and Wang, which resell them with their own computer equipment. Through the early 1980s, Dataproducts was successful selling “impact printers,” which print characters by striking the paper much as a typewriter does. It helped the company earn $27.7 million on sales of $472 million in the year ended March 30, 1985, which at the time landed it on the Fortune 500 list of the nation’s largest companies.
But the company was slow getting into the market for laser printers, which produce sharp images using a laser beam directed at photographic paper. Much of its efforts the past two years has gone into developing and selling a quiet ink-jet printer that uses ink stored in a Crayon-like bar.
In 1985, former Dataproducts Chairman Graham Tyson steered the company through a painful retrenchment that saw its worldwide work force slashed to 4,000 from 6,000. Indeed, the company made light of its problems in its 1986 annual report with a goofy picture showing 12 of its top officers dressed in bright-yellow raincoats standing in front of the company’s office. The message: Dataproducts had “weathered the storm.”
New Chief Well Paid
That year the directors hired Davis, a former Harris Corp. executive, to recharge the company, paying him handsomely to do it; he earned $483,000 in the last fiscal year. Yet so far, he has had to weather his own storms, in part because the printer market has not picked up substantially and the ink-jet printer has been slow to take off.
Dataproducts offices were closed last week for the holidays. Davis, who Dataproducts executives said was skiing in Lake Tahoe, could not be reached for comment.
Board members who were contacted declined to talk in detail about the possible takeover threat but said Davis enjoys their support. They believe that the company’s sluggish performance the past couple of years was largely because of a soft market for printers and not any management blunders.
“The board supports Jack completely on what he wants to do here. In this kind of market, Jack has done a hell of a job,” said Jack D. Steele, a director and business consultant who formerly was dean of USC’s School of Business Administration.
Tyson, a director who helped start Dataproducts, said of Davis, “We are 100% behind him.”
But Castle’s partner in buying the Dataproducts’ stock, Crescott President Munawar (Micki) Hidayatallah, blames Dataproducts’ lackluster performance on Davis.
Wants Friendly Deal
“There is no sensitivity to stockholder interest in management’s thinking. You have a chief executive who has been with the company for two years, owns very little stock, is paid a good salary and is the man who would be king,” Hidayatallah said.
Castle said he wants a friendly deal with management. But Dataproducts wouldn’t be the first time he and Crescott have tried an unsolicited bid. Last year, they launched a $90-million bid for William Carter, a children’s clothing company in Needham Heights, Mass. The company found a friendly buyer in Wesray Capital Corp., which bid $116 million.
To buy Dataproducts stock, Castle formed an alliance with his friend, Pakistan-born businessman Hidayatallah, a member of a prominent Pakistani family who fled the country in the early 1970s, when much of his family’s business was seized by Zulfikar Ali Bhutto, who was deposed as leader in 1977 and executed two years later.
One of Crescott’s most successful investments was the Orange Julius chain, which it sold for $23.5 million to International Dairy Queen in 1987. Hidayatallah said Crescott’s profit from the sale of the company and dividends it received came to about $17 million.
Crescott is primarily an investment vehicle now, but has some operations. Among them are 12,000 vending machines, including those in the federal gold depository at Ft. Knox, Ky.
Acquaintances say one of Castle’s strengths is an uncanny recall of numbers and details. Perrin Long, who follows the brokerage industry as an analyst for Lipper Analytical Services, recalls that when Castle ran DLJ he could recall any number Long needed from memory. Long adds that although Castle was demanding as a boss at DLJ, he deserves credit for keeping the brokerage’s costs under control, hiring good people and keeping the company on a steady growth plan.
Equitable Owns 20%
“He has an abrasive attitude, and I can’t deny it. But he has the ability to say no. If you only have the ability to say yes, nothing will get accomplished,” Long said.
Castle says he’s matured since the days when he developed the reputation for being abrasive and he considers it something of a bum rap anyway. “I think I’m viewed as a fair, demanding manager,” he said.
Dataproducts has a standard group of anti-takeover shields in place, including a “poison pill” to make it prohibitively expensive for an unwanted suitor to buy the company and staggered election of its directors.
Ironically, Castle’s old employer, Equitable Life, is Dataproducts’ biggest shareholder with about 20% of the stock. Castle said he became interested in Dataproducts independently while looking for undervalued businesses.
Should relations turn hostile, Dataproducts is likely to have a tough foe to deal with. Although his firm, Castle Harlan, is small, it controls some $20 billion in assets, mostly through Delaware Fund, a money management firm acquired for about $300 million last March by a limited partnership Castle formed.
Castle said he and Crescott are well financed and that buying Dataproducts would not be difficult. “I’ve done much bigger deals than this. I’ve done deals in the billions of dollars,” he said.