Commodore to Pay About $25 Million For Amiga Corp.

Commodore to Pay About $25 Million For Amiga Corp.

By Dennis Kneale, Staff Reporter
The Wall Street Journal

December 7, 1984

New York -- Commodore International Ltd. is paying about $25 million in stock and cash to acquire Amiga Corp., a small Silicon Valley start-up company that will supply it with a much-touted new computer.

Commodore's most recent quarterly statement gives the first details of its previously announced purchase of Amiga, which may provide Commodore with a hot new product as sales of its flagship 64 home computer slow. The purchase also brings 27 Amiga engineers to Commodore's ranks, which have been depleted by numerous departures.

Commodore will pay $12.8 million and as many as 550,000 of its common shares for Amiga, according to the unaudited balance sheet for its first quarter ended Sept. 30. The Commodore shares would be valued at about $12 million based on yesterday's closing price of $21.75, down 12.5 cents, in composite trading on the New York Stock Exchange. But a source within the company said the acquisition was based on a per-share price "in the mid-20s."

Commodore so far has paid $5.3 million cash and has issued 356,733 shares. The remainder is payable over a period of time, which wasn't specified, based on Amiga meeting certain requirements. Commodore also has advanced $3.5 million to cash-short Amiga, the statement said.

Wall Street analysts and others offered mixed responses to the value of the purchase, which will be difficult to assess until Amiga's new product is introduced sometime in mid-1985. "I've heard nothing but raves about this machine," said Ronald Koenig of Ladenburg Thalmann & Co., "but no one can tell whether it's a good purchase until they introduce that product. We'll have to wait and see."

"Amiga obviously has tremendous technology. The price tag sounds very fair," said Joseph B. Miller, who last February left Atari, which was then a unit of Warner Communications Inc., to become software vice president at Koala Technologies Corp. He has seen the Amiga product, which has been praised for its color-graphics capabilities.

The proposed transaction has prompted a lawsuit against Amiga by Atari Corp.'s chairman, Jack Tramiel, Commodore's founder and ex-president. That lawsuit, still pending, accuses Amiga of breaking a supply contract and fraudulently negotiating to sell chips to other companies, which weren't identified.

Commodore executives say the dispute won't delay the Amiga machine's introduction, although the lawsuit seeks to bar Amiga from transferring the chips to others. The chips are believed to be the heart of the new computer.

Commodore's quarterly balance sheet also shows its inventory grew in the Sept. 30 quarter, as it geared up for Christmas sales, to $437.4 million from $398.7 million a year earlier. The inventory increase included a 51% increase in finished goods waiting to be shipped compared with a year earlier, when Commodore had large amounts of unfinished product because it was reassembling flawed disk-drive devices used to store information.

To finance that inventory increase, and expansions at its chip-making plant in Pennsylvania and elsewhere, Commodore took out an additional $50.3 million in long-term debt during the quarter, pushing total long-term debt to $127.6 million, compared with $95.4 million last year.