Perot to Invest Millions in Archive Corp., Become Part Owner of Its New Products
Texas billionaire H. Ross Perot will invest millions of dollars in Costa Mesa’s Archive Corp. in return for the right to buy more than 1 million shares of common stock and part ownership of any new products developed by the manufacturer of computer tape drives.
Under terms of an agreement announced Wednesday, Archive gets to use Perot’s cash to develop new products so the company does not have to spend some of the $28 million of its own money that it has stockpiled to buy other technology companies.
The infusion of cash also comes just before Archive must face a potentially costly lawsuit by another tape drive manufacturer, alleging that Archive infringed on its patent.
Neither company wanted to say much about the complicated deal Wednesday or disclose how much money Perot is investing. Perot’s company, the Dallas-based Perot Group, said only that Perot was introduced to Archive management in July “through a mutual friend.”
If Perot buys all 1 million shares that Archive has agreed to issue, he would own about 7% of the company.
Eight-year-old Archive said it wants to perfect new types of tape drives to help the company maintain its leading share of the $400-million market for 5.25-inch tape drives.
Tape drives convert information stored on magnetic tapes into signals that can be used by a computer. Archive has about 20% of the market.
Such technology investment deals were common in the high-tech industries in the 1970s, when investors could get tax write-offs for investing in research and development.
Since the tax laws changed, however, such deals are less common. In fact, this is the first such deal Perot has entered, said Steve Blasnik of Perot Group.
“If we could find more of them as attractive as this one, we’d do them,” Blasnik said.
The way the deal works, in broad outline, is that Perot will probably sell his share of any new technology the company develops to Archive, possibly in return for more stock.
“We want to end up being a part owner of Archive, not of a specific technology,” Blasnik said.
Perot is a colorful, opinionated, influential executive. He started Electronic Data Systems in 1962 with $1,000 and is now worth $3 billion, the third-largest private fortune in the nation. After selling EDS to General Motors, he quarreled publicly and bitterly with the giant auto maker from his seat on the GM board.
Perot has been increasingly involved in investing venture capital in new companies in return for company part-ownerships. Perot recently plunked $20 million into Apple Computer founder Steve Jobs’ NeXT computer company.
But lately, some of Perot’s ventures have missed the mark. His new data-processing company, Perot Systems Corp., recently lost out on a Postal Service contract and a bid to handle the Texas Medicaid program.
Archive, meanwhile, has its own problems. Cipher Data Products Inc. of San Diego has accused Archive of stealing some of its technology and incorporated it in Archive’s own tape drives.
Archive denied that and targeted two lawsuits of its own against Cipher.
The Cipher suit could come to trial as early as May. Analysts said Cipher’s case was bolstered last year when it won a similar suit against Wangtek, a unit of Culver City-based Rexon.
Wangtek agreed to pay damages and royalties, which add to a company’s cost of production and make it less competitive.
Archive has been consistently profitable in the last few years, reporting profits of $10.5 million on sales of $122.7 million for its latest fiscal year, ending in September.
