Chapter 3 - Data Communications: Emergence 1956-1968
3.8 Codex and Milgo Become Public Companies 1968
By early 1968, Milgo management had reason to celebrate. Their recently introduced 4400/48, priced at $5,885 each, proved to be the first reliable 4800 bps modem to work over unconditioned, or minimally conditioned, telephone lines.76 The 4400/48 was an instant hit. Investment bankers began selling management on the idea of going public; the market for technology stocks that had been so hot through much of 1967 looked to be returning, and anything to do with computers was certain to generate buying interest. Needing cash to finance their growth, Milgo filed and went public in May 1968. Their timing could not have been better. In the first month of trading Milgo’s stock price doubled.77 Then in August, Milgo signed an agreement with Racal Electronics, Limited (Racal), a United Kingdom corporation, to sell Milgo modems internationally, raising another $250,000.78 By October it had become clear that the data communication business needed to stand on its own, and a wholly-owned subsidiary, International Communications Corporation (ICC), was chartered with three percent of the stock distributed to employees.79 (The convention will be to use Milgo, not ICC, as the corporation name, for eventually that was to become industry practice.) Modem sales for Milgo in 1968 would total $1.1 million, second only to AT&T.
Fortunately for Codex management, the “feeding frenzy” for the public stock of young technology companies continued into the fall of 1968. With promises for the future more important than current operating results, and with the performance of Milgo’s stock on record, Codex went public on December 23, 1968, raising $2.1 million, with a company post-money valuation of $12.5 million. The success of the offering rested entirely with the excitement generated by the revolutionary AE-96, not the low margin, unpredictable government R&D operations.80 Sales of $1.3 million for 1968, however, included no modem sales.
“Market Briefs,” Business Week, May 18, 1968, p. 128
In August, 1968, they agree “to form a jointly owned United Kingdom corporation to be named Racal Milgo Limited (Racal Milgo). Racal agreed to pay to Milgo the sum of $250,000 in exchange for one half the manufacturing and marketing rights to the data modem product line in Europe, Australia, New Zealand, and the Union of South Africa.” Milgo Annual Report, 1968, pg. 10
Again from the 1968 Annual Report: “The Company believed the formation of ICC to be in its best interests, and that the grant of stock bonuses to the selected officers and key employees would enhance the probability of the Company’s retaining these persons in its employ. The Company believes the retention of these persons to be important to its future… At this time, ICC performs marketing and engineering functions in the data communications field and utilized the Company’s manufacturing facilities for its manufacturing needs.” The three percent it distributed was much less than the twenty plus percent common for independent companies.
Thus, the Board and management turned a significant return on the little more than $100,000 they had paid for Teldata.