Five years ago, mighty SyQuest barely looked down its nose at cheap, removable disk drives from scrappy Iomega. On Wednesday, Iomega, now the undisputed champ of the removable disk industry, bought out SyQuest, which filed for bankruptcy last month.
Iomega said it would purchase SyQuest's intellectual property and other assets for US$9.5 million in cash, eliminating virtually all of its competition.
Iomega (IOM), maker of the high capacity removable Zip and Clik disk drives, said SyQuest filed a motion on Wednesday in the United States Bankruptcy Court seeking approval of the asset sale.
"Now they ostensibly have 100 percent of the removable [storage drive] business," said Howard Rosencrans, director of research at HD Brous & Company. "They paid negligible dollars" for SyQuest's assets, he said.
In the late 1980s, SyQuest (SYQT) dominated the industry. In fact, its drives were the de facto standard for businesses that had to handle huge data files. But the company paid little attention to rivals selling cheaper drives, and by the time SyQuest sensed danger, it was too late. It was outflanked by Iomega, whose Zip drive stored more data per disk and cost less.
Last August, after futile management reshuffling and piecemeal cost-cutting measures, SyQuest fired 950 -- or half -- its workers. It filed for bankruptcy in November.
"We have taken a close look at SyQuest's assets, particularly its intellectual property, and concluded that they can add value to our business and our shareholders," said Jodie Glore, Iomega's president and chief executive.
Iomega is not purchasing SyQuest's liabilities. Warranty service and customer support obligations for products sold by SyQuest will remain the responsibility of SyQuest.
Iomega also isn't purchasing SyQuest's subsidiary in Malaysia. SyQuest Malaysia's assets are being offered for sale separately, and Iomega said it will submit a bid for SyQuest Malaysia's equipment and inventory at "a price substantially below that being paid for the US assets."
The deal also puts an end to the patent and trademark infringement lawsuits between the companies.
The deal, set to close in the first quarter 1999, will have no effect on Iomega's fourth quarter 1998 financial results.
Iomega's stock was trading on the most actives list, up 6 cents a share at $9.18 a share by early afternoon.
