History (1998): Iomega Settles Litigation With Nomaï

It will cost Iomega a total of $43 million to acquire one of its chief competitors, Nomaï.

This figure corresponds to 1.8x Nomaï’s sales for the fiscal year ended in December 1997.

In the first phase, the Roy, UT company will acquire 53% of the capital of the Avranches, France-based firm for $21 million, which corresponds to all the shares held by founders Herv eéet Marc Frouin (46%), plus those of minority shareholders , Xyratex (5%), a British subcontractor for Nomaï drives in Havant, UK, and StorMedia (2%), a US HDD media manufacturer, for a combined total of 679,957 shares at 188 francs ($31) each.

To acquire the rema ining portion of the company, held by employees and the board of supervisors, along with those shares currently listed on the second largest French stock exchange, Iomega will initiate a tender offer at the same rate, 188 francs per share, which should run the company another $19 million.

In the announced transaction, the US firm will also acquire, for another $3 million, certain technology owned by Nomaï, and used in the manufacture of the Zip -compatible XHD and DUO cartridges.

Iomega will get Nomaï HQ in Avranches (140 people), its R&D subsidiary, Myrica (20 people) in Scotland, as well as its diskette factory (45 people) in Albi, in the south of France. There is also a US distribution subsidiary, Nomus, with one employee.

According to a Nomaï spokesperson, no guarantees have been given to Nomaï personnel, and the buyer will take 3 months to study the necessary reorganization.

Nor was any indication given whether Iomega would continue with the removable cartridge drive manufacturing activities, and in particular with the development of a 2GB low-cost device.

The fate of the Albi plant remains a mystery, although a second source of Zip cartridges in Europe, would no doubt be welcomed by Zip drive OEMs. It’s difficult to imagine Iomega pursuing the construction of SyQuest-compatible cartridges, currently produced in a cleanroom in Avranches. Nomaï, also resold CD-RW drives, with the intention of entering the DVD-RAM market.

With this deal, Iomega is basically buying peace and quiet. Since March 1997, the 2 firms were implicated in a multitude of lawsuits throughout the world, concerning the IP rights of Zip cartridges. Neither company was certain of coming out ahead. Nomaï now admits that there was substantial evidence that a court in England was ruling vs. it. But this declaration came only on the day of the announced acquisition.

Nomaï had scored a few victories in other countries, particularly in USA, and France, where nothing prevented the French company from selling its compatible media.

Of course, the transaction will annul all legal actions still underway between the 2 adversaries.

It was not certain that Nomaï could have held financially for much longer, after a FY97 with reported sales of FF144 million ($24 million), identical to 1996’s figures, but this time with significant losses: FF46 million ($7.7 million).

In other words, the deal works out well for nearly everyone except Nomaï employees, and the local and national authorities who gave the French company a substantial financial boost in order to create jobs in the Normandy region, many of which now will no doubt be eliminated.

The city of Avranches seems to have no luck with the computer industry, after witnessing another firm, PC manufacturer Normerel, closed its doors.

The day after the announced acquisition, David Henry, who was VP WW marketing at Iomega and is now GM of Nomaï operations, flew to Iomega’s HQs in Roy, UT, take over the reins of Nomaï from the outgoing CEO Marc Frouin.

After the failure of Silmag, only one manufacturer remains in France, ATG, a maker of 12-inch optical WORM disk and drives.

Moreover, Nomaï’s absorption into Iomega leaves only 2 remaining competitors for the Utah company: SyQuest and Castlewood Systems.

For similar motives (the manufacture of compatible cartridges), SyQuest tried and failed to acquire Nomaï, at the end of 1996, Iomega did not choose the ideal moment to get out its checkbook. After the legendary period under Kim Edwards’ leadership, and almost 3 years without a losing quarter, Iomega reported losses in 1Q98, and it seems nearly certain that 2Q98, as well as its fiscal year ending next December will show a deficit. Revenues for 2Q98 wiII, rough fIy on the level of the first quarter ‘s $408 million. At mid-June, the company announced a 600 to 700 person reduction of its workforce, currently a round 5,000 employees. This internal restructuring is partly due to rising corporate expenses, weak international sales, softer than expected aftermarket sales combined with the shift toward lower margin OEM sales for the Zip drives.

This article is an abstract of news published on issue 126 on July 1998 from the former paper version of Computer Data Storage Newsletter.