History (1989): Cipher Acquires Irwin for Approximately $74 Million

Several months ago, Caliper joined Mountain on their common shareholder’s instigation, the Japanese company Nakamichi.

The American answer is the acquisition of Irwin Magnetic Systems Inc. (Ann Harbor, MI) by Cipher Data Products Inc. (San Diego, CA).

The boards of directors of Cipher and Irwin have approved and signed on March 1, a definite merger agreement providing for the acquisition of Irwin by Cipher through a cash tender offer for all Irwin shares at a price of $13 per share. The tender offer is conditioned, among other things, upon regulatory approvals and the receipt of a majority of the Irwin shares.

The tender offer is not conditioned upon the arrangement of financing and will commence no later than March 8, 1989.

The first Boston Corporation will act as dealer manager for the tender offer.

In connection with the merger agreement, Irwin agreed to grant Cipher an option to acquire authorized but unissued shares of common stock equal to 9.9% of its outstanding shares at $13 per share in cash.

Certain principal shareholders of Irwin granted to Cipher options and irrevocable proxies covering 14.9% of the outstanding shares of Irwin common stock.

In addition, the merger agreement provides, under certain circumstances, for the payment of a break-up fee and expenses to Cipher.

The entire cost of the acquisition can be estimated at approximately $74 million.

The announcement was made by Cipher’s COB and CEO, Gary E. Liebl: ” We are most excited about the synergy that will emerge from combining our removable information storage business with Irwin’s 3.5-inch minicartridge tape systems, an area in which Cipher has not been active. The result will be a strong company with capabilities in half-inch reel-to-reel, half-inch cartridge, both 5.25-inch and 3.5-inch form factor quarter-inch cartridge and optical technologies.”

Herbert S. Amster, Irwin’s chairman and CEO noted that while the two companies are complementary, each has is own corporate focus: “Cipher’s emphasis has been on a broad range of information storage products while we have concentrated on fast-growing 3.5-inch minicartridges. This acquisition will provide Cipher’s products immediate access to wider distribution channels, particularly in the retail area, and will offer the Irwin line greater visibility in the OEM market place where Cipher has traditionally been strong.”

Irwin will become a business unit of Cipher, managed by Edwin Carlson, Irwin’s president.

Irwin regains OEM customers
In its FY88, ended last June, Irwin reported sales of $49.2 million, dropping from 1987 ($51.6 million) because of soft OEM demand. Forecasts for the present period are over $70 million, due to recent OEM contracts with Hewlett-Packard, IBM and Zenith (it had lost before).

Other major OEM customers include Compaq, Data General, NEC and Olivetti. Major retail customers are Businessland, ComputerLand and Entre Computer.

In fact, Irwin reported sales of $34.6 million in the first half of its present fiscal, compared with $25.0 million in the first half of 1987. In comparison with these two same periods, the company reported slightly lower profits, $1.318 million vs. $1.330 million.

Until now, the company sold over 600,000 systems to its OEM, retail and distribution customers worldwide.

It manufactures 38 different models with capacities ranging from 10 to 80MB. 40MB drives counted for 30.3% of its revenues in 1987 and 62.2% in 1988. The company’s products are based on a patented electronic head positioning technology.

According to a financial study made by Drexel Burnham Lambert before Cipher’s acquisition: “We believe Irwin’s improved fundamentals make the stock attractive for long-term investors. Key points of our investment thesis include established market leader, strong technology position, earnings growth, strong financial position and modest evaluation.”

Cipher ended its 1HFY89 fiscal year last December with $105.85 million sales, increasing 25%. Net income reached $7 million which means a 144% boost compared with the same period of the previous year. This improvement is mostly due to exceptional $2 million earnings in the first quarter. In the second quarter, sales reached $53.8 million (+18.6%) and net income $3.18 million (+45.1%).

This article is an abstract of news published on the former paper version of Computer Data Storage Newsletter on issue ≠14, volume ≠2, published on March 1989.