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February 18, 1987

MEMOREX INTERNATIONAL SEEKS TO EXPAND BY ACQUISITION IN MAINTENANCE, LEASING

By CBR Staff Writer

The new, independent Memorex International NV, registered in the Netherlands and headquartered in London, should be on the Amsterdam, New York and London stock exchanges in 18 to 24 months’ time, providing turnover increases 20% a year, according to the company’s new president Giorgio Ronchi who led the $550m management buy-out last December. Ronchi says that Memorex, with 6,000 employees and 26 offices worldwide, will be a marketing driven, rather than product-driven company and is now free to choose its technologies and suppliers in its four areas of business; data storage, 30%; communications, 30%; storage media, 20%; and service and maintenance, 20%. Acquisitions are likely in the IBM third party maintenance world and in leasing and brokerage, with a few million dollar company in Europe about to be acquired to become the European counterpart of Memorex Financial Corp in the US. Although Ronchi and five other Memorex International managers took control of the company on December 23 last year it was not the first time they had tried – in June 1985 Ronchi was told by senior Burroughs managers to wait for a year. The management team initially approached the City of London for backing, without success, although a good European customer of Memorex’s was interested in financing the buy-out. Ronchi says that the final price paid was a little under $500m, with managers holding 30%, the Drexel Burnham Lambert investment bank 25%, and New York financier Eli Jacobs the rest. Over the next month 180 managers will take up share options, with 2.5% of the company being offered each year for the next four years to another 150 managers, taking the management stake up to 40%. The $500m paid to Burroughs was 3% under Ronchi’s estimation and Memorex now has $150m im the bank, $60m of which will be paid to Unisys on March 23 this year. Others were interested in taking Memorex off Burroughs’ hands, says Ronchi, Fujitsu were the best candidate to buy us and I’m very surprised they didn’t do it. Memorex now has six manufacturing plants, three in the US and three in Europe. Media products will be assembled in the Dublin and Liege, Belgium, Besancon, France, and in Santa Clara, California, where there is also a tape cartridge development operation, and communications products in Milpitas. There are no plans to expand the production facilities there or elsewhere.

Software houses

Memorex plans to release 30 new products this year, including printers, workstations sourced from Japan and Taiwan and storage and tape units. As part of the management buy-out package, Unisys and Memorex reached an exclusive agreement on big disk drives, the only part of Memorex that Burroughs wanted to keep. Memorex has exclusive distribution rights to Unisys’ disk drives and, with 70% of its output, is Unisys’ biggest disk drive customer. Unisys has kept a $73m stake in preferred shares in Memorex, and Memorex hopes to make $250m sales to its former parent in storage media alone. Memorex International’s business is forecast to grow at 20% a year, with $984m turnover in 1987 through to $1,231m in 1991 being conservative estimates, those figures are 25% lower than we could achieve says Ronchi. At the moment 40% of business is done in the US, with Japan doing $100m a year and the rest in Europe and the rest of the world. The US market will grow to take 50% of revenues over the next five years, but the company doesn’t plan to raise the percentage of goods that it manufactures itself – that figure has dropped from 40% to 25% with the loss of the disk drive business. In the US the company needs 500 extra sales staff to handle the marketing effort, with last December seeing revenues of $120m and profits of $20m in the month. Memorex claims a 2% to 3% share of the $16,000m a year IBM peripherals market, with IBM taking $12,000m of a market growing at 15% a year. Ronchi says that I’m now free to announce products that three months ago I couldn’t at Burroughs and adds that Memorex will be seeking partnerships similar to the ones it has with Fujitsu and Unisys, k

eeping its research and development budget at a modest $6m to $10m a year – software houses will be looked at and I don’t exclude buying maintenance companies.

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