Ailing Encore Computer Corp faces a huge legal battle after finally selling its storage productions division to Sun Microsystems Inc for $185m. While the sale won the support of a clear majority of shareholders, disgruntled minority investors have already started court action over the deal. They are furious that Encore has agreed to give $150m – or 80% of the proceeds from the Sun deal – to Gould Electronics Inc, whose owner Japan Energy Corp has lent Encore $399m. This lavish subsidy does not impress the rebels who complain that Japan Energy – which has described Encore as a bone in its throat – decided to get out of Encore with as much cash as possible regardless of the consequences to Encore’s shareholders. The complaint alleges that Encore’s shareholders will be left with virtually nothing while Encore’s directors will receive valuable bonuses and incentives. Robert Collins, a spokesman for the shareholders, said the deal enabled Gould and Encore to ‘cut and run’ with hard cash from Sun, even though other possible arrangements – such as OEM contracts or joint ventures – would have been more valuable to Encore and its common shareholders. Meanwhile, Sun was delighted the deal had gone through and said it would significantly expand its presence in the open storage market, expected to be worth $35bn by the year 2000. It would add Encore’s mainframe and open systems connectivity, data sharing and business continuance products to Sun’s existing line of storage and server systems. With Encore shares currently languishing at $0.312, there is little confidence in the future of the Fort Lauderdale, Florida company although chairman and chief executive Kenneth Fisher has said that what remains after the storage sale – real time systems and products – are the only part of their operations that make money.
