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Entrepreneurial Capitalism and Innovation:
A History of Computer Communications 1968-1988
By James Pelkey

Entrepreneurial Capitalism & Innovation:
A
History of Computer Communications
1968 -1988
By James Pelkey

This history is organized by three co-evolving market sectors and also standards making.
An overview of the schema is presented in the Introduction.

DATA COMMUNICATON
Ch. 1: Emergence
Ch. 3: Competition
Ch. 5: Market Order
Ch. 11: Adaptation

NETWORKING
Ch. 2: Vision
Ch. 4: Arpanet
Ch. 6: Diffusion
Ch. 7: Emergence
Ch 8: Completion
Ch. 10: Market Order

STANDARDS
Ch. 9: Creation

INTERNETWORKING
Ch. 12: Emergence

 

 

Chapter 12
Internetworking: LANs and WANs 1985-1988
Local Area Networks and Wide Area Networks

 

12.16    Micom

Although posting a slightly better year than 1986 (sales were up 4% and earnings up 13%), make no mistake: 1987 had been a very difficult year for Micom. The dataPBX business was drying up with no prospect for recovery. The market for statistical multiplexers also showed every sign of having had their day in the sun. In fact, the concept of selling products, a marketing distinction of Micom, pointed to becoming a smaller company and selling systems seemed fraught with high risks and major organizational changes; all elements that had scared Bill Norred, founder and past President and now Chairman of the Board, and major shareholder.

In early 1988, Norred and two other major shareholders became concerned for the value of their shares and pressured the Board to either buy their shares in a friendly transaction or threatened sale to other buyers. (As major shareholders it was not possible to sell their shares without adversely affecting the share price and thus the value of all their remaining shares.) Roger Evans, President and CEO, would rather not have had to deal with this problem given the precarious nature of the business, but worked hard to find a solution for his long-standing friend and the stability of the company’s share price. By early April, Evans had secured the necessary financing and Micom announced a tender offer for 4.8 million shares of stock at $16 per share. (Norred, and Mr. and Mrs. Thornton, would be selling a total of 4.194 shares.) Then on April 13, Micom announced a delay in the commencement of the offer until after April 26, with the offer subsequently remaining open for 20 business days.

In offering to buyback shares, Micom had unintentionally opened itself up to being acquired. Before the tender offer had barely begun, the Board announced that it had received offers from an undisclosed number of unidentified suitors. (Since the prices being proposed were above the prevailing market price of $13.50, the Board had the fiduciary responsibility on behalf of all shareholders to explore the offers.) The Board announced it had taken three steps: a committee of the Board had been established to study the offers, the services of the investment banks Goldman Sachs & Co., and Volpe & Covington had been retained and the tender offer had been cancelled. [1] In early August, Micom announced it had entered a definitive agreement to be acquired by a company formed by Odyssey Partners, a major leveraged buyout firm. The all cash offer translated into the purchase of each outstanding share of Micom for $16.00/share.

Including fees, expenses and refinancing of existing debt, the total purchase price to Odyssey Partners was $334 million. Immediately prior and connected with the acquisition, Micom sold its “MICOM Digital” subsidiary for $9.5 million; effectively the Spectrum Digital acquisition made in 1987 for $19.4 million. The $9 million became part of the $51 million of cash of the company. To finance the $334 million, the surviving private company:

Issued $248 million of Debt
Issued $34 million of Preferred Stock
Issued $1 million of Common Stock, and
Used $51 million of Micom’s cash.

In comparison, Micom had $5.8 million of long-term debt on March 31, 1987.

To reduce the debt, the strategy was to sell all operations other than the Black Box subsidiary.

 


[1] “Micom Eyes $250M-Plus Suitor,” Electronic News, May 2, 1988, p. 31