Perot’s Deal Could Unlock Doors for Costa Mesa Firm
When Archive Corp. officials go on the road to woo investors these days, they have something jazzier to talk about than their hit computer-memory product.
Now, Archive officials can talk about H. Ross Perot, the Texas billionaire, computer entrepreneur and former General Motors director and chief critic. Last month, Perot’s Dallas-based investment company announced plans to invest $6.7 million in Archive for the rights to certain technology developed by the small Costa Mesa firm.
Besides the name-dropping value, Perot’s involvement promises to bring Archive exposure and attention that few computer-component manufacturers are able to get.
The agreement enhances Archive’s credibility on Wall Street as a firm “that can do leading technology work and is a valuable company with promising growth,” said Marshall J. Leisten, an analyst with the Volpe & Covington brokerage firm in San Francisco. “It also says they’ve got something sexy.”
Added B. J. Rone, Archive’s vice president for finance and administration: “There are people who have never heard of Archive, but they have heard of Ross Perot. They watch where people like Perot invest.”
It was Rone, a former Texan, who initiated the deal last summer by calling on a former business acquaintance who now works for Perot in Dallas. One thing led to another, and soon Rone and Archive Chairman D. Howard Lewis were on a plane bound for Dallas and a meeting with Perot.
“We took a wild shot, and it worked,” said Rone.
Under the deal, Perot Investment Management Corp. will help bankroll Archive’s development of new products. Archive and Perot officials, citing competitive reasons, won’t say much about the specific technologies involved.
The Perot company has acquired the right to buy more than 1 million shares of Archive stock, or about 7.4% of the company. In addition, Perot’s firm will own the rights to any new technology developed through the partnership. Archive has retained the right to buy back the technology or license it from Perot.
“We think they have exciting technologies and are very well-positioned to exploit them,” said Steven L. Blasnik of the Perot Group, the parent of Perot Investment Management. “We were impressed with the quality of the management people . . . and with their financial performance. We realized these were people who know how to run a business.”
For Archive, the Perot deal means the company won’t have to dip into its $12-million cash kitty to fund new product development. Instead, Archive officials say, the company will use the cash to buy up competitors.
In fact, on Monday, Archive announced such a deal--the company said it had reached an agreement to acquire Maynard Electronics, a small Casselberry, Fla., tape-drive maker, for an undisclosed price.
Technology investments are nothing new for Perot. He has invested $20 million in Next, the computer company headed by Apple Computer co-founder Steven Jobs. But Archive is Perot’s first investment in a publicly held computer firm.
The Perot connection has helped Archive’s stock, which has been floundering between $6 and $7 a share for most of the past year. The over-the-counter stock, which traded at $8 just before the Perot deal was announced Jan. 18, closed Monday at $10.
Analysts speculate that Perot was attracted by Archive’s involvement in digital audiotape products for storing computer information. For example, the company has an agreement with a unit of Japan’s Matsushita Electrical Industrial Co. to develop and manufacture DAT products.
DAT technology, which is beginning to make an appearance in consumer audio products, allows information to be converted and stored on tape as digital pulses, rather than as magnetic pulses.
Digital audiotape offers several advantages over magnetic tape. Because it is smaller, DAT can fit into the same slot in a desktop computer where a 3 1/2-inch hard-disk drive usually goes. It is also thought that DAT technology might eventually offer more storage capacity than magnetic tape.
Archive manufactures streaming cartridge tape drives, which are magnetic tapes used to make backup copies of data stored on computer hard disks. The backup tapes prevent data from being lost if the computer “crashes.” Founded in 1980, the Costa Mesa firm pioneered the market for its streaming quarter-inch-wide tape drives. (Streaming refers to the way the tape moves through a cartridge.)
As the number of personal computers and workstations equipped with high-capacity hard disks has grown, so has the market for tape drives. Today’s PCs typically come with a hard disk capable of storing in excess of 100 million characters of information. Unlike floppy disks, the hard disks cannot be removed and stored in a safe place.
While floppy disks are fine for copying small amounts of data, they are impractical for storing information from the high-capacity hard disks. Copying the data from a 20-megabyte hard disk, for example, requires 40 floppies and about 80 minutes of time.
“There are a lot of computer users who still use floppies or who don’t back up their files at all,” said Raymond C. Freeman, president of Freeman Associates in Santa Barbara, a computer industry consulting firm. “But there is an ever-expanding number of people who are using quarter-inch drives” for copying data.
Big Piece of Market
Fear of computer viruses that can destroy software programs has also aided Archive, independent computer analyst Donald Sinsabaugh said. “If you want to make sure you have up-to-date files and keep away from viruses, the best way to do that is to have back-up files,” he explained.
Analysts cite Archive’s strong position in a growing market as a major reason for the company’s favorable prospects.
The Costa Mesa firm has about 26% of the $400-million market for quarter-inch tape drives, according to Freeman Associates. Archive’s sales have grown from $38 million in fiscal 1984 to $122.7 million for its latest fiscal year, ended in September. Net income last year was $10.5 million, up 72% over the earlier year.
The financial picture hasn’t always looked so rosy.
In November, 1986, Archive’s auditors discovered a huge accounting error that resulted in a $5-million inventory writedown and an $845,000 loss for the quarter. The embarrassing episode led to the resignation a week later of the company’s president, J. Peter Wilson. Lewis, who had given up the president’s job in 1985, returned to try to clean up the firm’s finances.
Perot has a reputation as a strong-willed businessman who likes to be in control. A Newsweek magazine article recently described Perot, who once organized a commando unit to rescue two employees jailed in Iran, as “the last take-charge guy in America.”
Would Take Advice
The best-known example of the Perot fighting spirit followed the sale of his Electronic Data Systems company to General Motors in 1984 for $2.5 billion. Perot, who joined GM’s board, engaged in a very public squabble with GM Chairman Roger Smith over how the giant auto maker was being run. Smith finally had enough of the persistent criticism and kicked Perot off the board, but not before agreeing to pay him $700 million.
For their part, Archive officials say they don’t anticipate Perot playing a similar role with their company. They point out that, unlike the GM situation, Perot will not serve as a director or have any direct involvement in managing the firm. Perhaps more important, Archive is minuscule compared to a corporate behemoth like GM.
But what if Perot does see something he doesn’t like at Archive?
“If that happens, my approach would be to listen very closely because he has been CEO of many profitable businesses,” said Archive’s Rone. “You’d have to pay a lot of money to get that kind of free advice.”
ARCHIVE CORP. AT A GLANCE HEADQUARTERS: Costa Mesa PRODUCTS: cartridge tape drives for computers MANUFACTURING OPERATIONS: Singapore, Costa Mesa EMPLOYEES: 1,392 including 452 in Costa Mesa CHIEF EXECUTIVE OFFICER: D. Howard Lewis 52-WEEK STOCK PRICE RANGE: $11.375-$5.125 MONDAY’S CLOSE (OTC): $10, down 12.5 cents COMMON SHARES OUTSTANDING: 13.1 million MARKET VALUE OF COMMON STOCK: $131 million
