Star Computer Group Plc, one of the first companies to float on the Unlisted Securities Market, and noted in our recent bargain basement (CI No 1,334), remains stoutly antipathetic to the City and what it regards as the shenanigans of grossly overpaid spivs. According to Ron Blechner, brother of joint chairman David Blechner, Star’s share price is unlikely to rise above the current 66 pence so long as Star isn’t ripe for takeover, or pursues an unglamorous and steady path. He insists that a takeover is highly unlikely since neither his sibling nor co-chairman Jack Schumann have any intention of taking their 56% shareholding below 50%. That would undoubtedly make the company more attractive to sceptical City folk. The 17-year old company has a chequered history, and despite what the ex-rock and roll promoter says, there is some justification for a degree of wariness and diffidence.

Idiosyncratic

A number of foolhardy acquisitions and idiosyncratic ventures have tainted the company’s reputation for financial acumen. Combine this with the City’s general downer on technology, and Star’s share value seems set to stay in the doldrums for some time to come. Star was established in 1973 and acquired Hartley, its Australian-based competitor in the same year. By 1981 the company was ready for listing on the USM and achieved full listing the following year, with the share price reaching an all-time high in December at 325 pence. The first real problems to hit Star came with a change of product strategy and the massive investment required to make the move to Unix. The company weathered those difficulties, but bad acquisitions and investments led to an uneasy perception of Star in the financial world. It made its first expensive mistake by acquiring Paxton for UKP500,000. Star had been looking at both Pegasus Plc and Paxton, and in view of Pegasus’ success, obviously plumped for the wrong one. The majority holding was eventually sold back to Paxton, and Blechner says that it was a costly lesson not to invest in companies that don’t have a proven track record and need to be drastically improved. As a dictum it sounds perfectly sound, but it isn’t one that Star has assiduously followed. In March 1987, Star announced the acquisition of Orchard Management Services for UKP500,000 (CI No 643). Orchard was turning over UKP2m per annum, with profits of UKP90,000. It’s main product was an MS-DOS-based package for accounts production and payroll, and seemed to complement Stars’ traditional Tetra software and general commercial packages. The acquisition also gave Star a 25% stake in Orchard Inc, a West Coast company that was rewriting Orchard’s products for the US market. However, the acquisition fell through because the owner of Orchard got cold feet, according to Blechner, and a marketing agreement was established instead. The marketing rights were subsequently re-sold to Or-chard about two years ago. Star also acquired a company called Connect Data, which Blechner describes as the jewel in the crown. The company was established in 1982 to supply and install computer cabling and fibre optics. A highly profitable concern, the acquisition, Star believes, was strategically correct. The downside came when Connect Data made its own acquisition. It bought GDC for UKP200,000, believing, says Blechner, that two plus two equals five. He also says that the lesson to be learned there is not to buy from outgoing management. Bad organisation within GDC was compounded when a key figure in the Connect Data-GDC relationship was involved in an accident and absent from work for a long period.

By Janice McGinn

The effect of this acquisition was felt in October last year when Star reported a UKP933,000 loss on turnover of UKP14m. Since then there have been radical changes within Connect Data. With a new management team at the helm, the company has been forced to cut costs and staff, and operations have been centralised under one roof. Blechner insists that a return to profitability is on the cards, and the intial acquisition will be vindicated. In May 1986

, Star appeared to go completely off the rails when it planned to float a new company specialising in waste-disposal. The Miniskip Group was already operating in Australia, and Star became interested via its Hartley subsidiary. David Blechner believed he could raise UKP2.5m via the Unlisted Se-curities Market, conditional on the Stock Exchange Council giving its aye, and establish a Miniskip operation in the UK. However, there was a great deal of reluctance in the City to back such a scheme, later compounded by Antipodean problems. Blechner defends the venture and says that the idea was basically sound, if ahead of its time. On that catalogue of tragedy it hardly seems surprising that Star is not the City’s favourite son. But, a combination of healthier acquisitions, restructuring, and the advice of Mike Whitaker of Singer Whitaker paints a more optimistic picture. Star’s other acquisitions over the past two years include the systems house Pinnacle Computer Systems Ltd, Summit Computers Ltd with Summit Computer Maintenance Ltd, and United Health Systems. The first cost UKP40,000, and Summit cost UKP160,000 upfront with UKP150,000 over the next three years, according to performance. United Health Systems was acquired in September 1989 for UKP25,000 upfront and a maximum of UKP150,000 over a three-year period. Pinnacle provides computerised management and reporting systems. Its primary product is Service Manager which uses fourth generation language techniques, and runs on Convergent, Arix, and Unisys machines. Blechner says that overseas markets are increasingly important, and he sees 1992 as an opportunity for Pinnacle to expand its activities. The second acquisition, Summit Computers and Summit Maintenance, specialise in Data General look-alikes, and have now been subsumed into the company’s engineering division. They are also involved in the education sector where a number of establishments are using the Convocate conference booking system to augment revenues. The third, United Health Systems, was established in 1983 with a system designed for pathology laboratories.Since then it has developed systems for radiology and hospital administration. Recent government proposals to reform the National Health Service have led to work with ICL and Bull on resource management contracts. Blechner forecasts that United Health Systems will be the next Pinnacle in the Star family.

Vicissitudes

Conse-quently, the new-look Star Computer Group Plc is the holding company for six operations, all answerable to the main board. They comprise Star Computers Ltd, Pinnacle Computer Systems Ltd, Summit Computers Ltd, United Health Systems Ltd, Connect Data Ltd, and Star Computer Services Ltd. Star Computers Ltd remains the group’s core business and supplies Unix systems based on Tetraplan and Chameleon software. The company also distributes Convergent Technology, now Unisys, machines. In October last year, Star attributed some of its losses to market uncertainty about the future of this equipment. There are suggestions that Star wants to get rid of its distribution business, but the company denies this. Blechner says that Unisys has committed itself to the range and the two companies have an amicable, ongoing relationship. Star Computer Services is the engineering and disaster recovery subsidiary, and supports Convergent, Arix, Data General, Micos, and ITG equipment. Blechner is confident that the restructuring will ensure Star returns to profitability, arguing that the company has grown from a single product business to a multiple group, despite a number of lean years and changing business cycles. He says the City is wrong to take a short term view of technology oriented industries, and maintains that a firm in business for the best part of two decades, is likely to survive the vicissitudes of City analysts. A view that many others would second.