PHOENIX RISING : Computer deal with Soviets puts controversial executive back in limelight

Charles W. Missler savors the panoramic view from his spacious offices on the seventh floor of a futuristic-looking Irvine office tower.

From there, Missler can look past the busy San Diego Freeway to the headquarters of Western Digital Corp., the computer manufacturer he nursed back from bankruptcy in the late 1970s. The view serves both as a reminder of the struggling company he saved and of the sizable personal fortune he made.

Since his days at Western Digital, Missler has been called on to rescue some of Orange County’s best-known high-technology companies. The results: some success, some disasters and a lot of controversy.

“When Chuck comes in to a company, there’s usually lots of excitement, lots of press attention,” said a former Western Digital executive who worked with Missler. Missler has been generating lots of attention lately.

Skepticism Greets Plan

Phoenix Group International, a small Irvine-based technology investment company that Missler heads, last month announced an unprecedented joint venture agreement to sell as many as 6 million IBM-compatible personal computers to the Soviet Union. The deal, which involves setting up a factory in the Soviet Union, has been called the biggest computer sale agreement ever struck with the Soviets.

Some industry executives and trade experts, however, are skeptical of the Missler deal, announced Sept. 11 at a press conference in New York. They wonder why the Soviets picked the Phoenix Group over its 16 rivals, from all over the world. They also question whether Missler can pull off a deal that could be much bigger than anything he has done before.

To his supporters, Missler is a technical wizard and brilliant businessman with a talent for transforming troubled high-tech companies into winners. He is described as a charismatic speaker (he hones his oratorical skills at a popular weekly Bible study class at Calvary Chapel in Costa Mesa) and a super-salesman, a masterly motivator whose energy and enthusiasm are contagious.

‘Turnaround Visionary’

Peter C.M.S. von Braun, a Greenwich, Conn., investor and business associate of Missler, calls him “a superb leader with outstanding people skills. He probably has the best grasp around of where various technologies are going in the marketplace.”

Missler, for his part, describes himself as a “turnaround visionary.”

“There is nothing I like more” than a difficult corporate turnaround, he adds.

Others familiar with Missler’s business dealings tell a different story. They say Missler’s management track record is far less impressive than he portrays it to be. They say he is better at whipping up investor interest in his companies than actually running them. Further, critics say, his management methods have sometimes been controversial.

Missler said he has become accustomed to criticism from competitors and that he is undeterred by questions about the Soviet computer deal. And, in classic Missler fashion, he has been trumpeting the Phoenix Group deal to stockbrokers, investors, reporters and others.

A few days after the deal was announced, Missler spoke about it to the 150 people attending his Bible study class. (The 2 1/2-hour sessions are taped and rebroadcast Monday through Friday nights in half-hour segments on KWVE-FM, a Christian radio station in San Clemente).

Missler, who is a Bible scholar, told the group that he had recently received a divine inspiration in which it was prophesied that God “was going to send us the deal of the century.”

Complaints About Media

Missler, boasting that “every major computer company in the world” was trying to sell computers to the Soviets, said that sales of 6 million personal computers could generate $8 billion in sales for the joint venture.

During the Bible class, Missler criticized news reports in the Los Angeles Times and the Orange County Register, which he contends were overly skeptical of the Soviet venture. Local newspaper reports “made fun of the venture,” he said, while the Soviet press “applauded” it.

In an earlier interview, Missler told a reporter that he has been unfairly treated by the press since his days at Western Digital. “My adversaries have used the press against me,” he said. “They have destroyed my reputation.”

Missler, 55, is a tall man with a military bearing who favors conservative dark suits and ties in red, white and blue. In his spacious and tastefully decorated office, a Soviet flag--a red banner emblazoned with a hammer and sickle--shares space with Old Glory. Just outside his office door are an illuminated world globe and a large, formal painting of Missler himself--the kind a bank president might display in a board room.

‘Compelling Story’

Missler, an engineer by training, has been chief executive of several small Southern California technology companies. In 1977, United California Bank (now First Interstate Bank) hired him to come to the aid of Western Digital, then bankrupt and unable repay more than $6 million in bank loans. United California was Western Digital’s largest creditor.

“Chuck put together a compelling story that convinced the bank and also convinced a lot of talented people to join the company,” said an Orange County investment banker who has worked closely with Missler. “He also convinced a lot of people to buy stock in the company, which helped bankroll Western Digital’s emergence from bankruptcy.”

Under Missler’s stewardship as chairman and chief executive, Western Digital came out of bankruptcy in 1978. Sales rose rapidly, and the company eventually returned to profitability in fiscal 1979 and 1980.

“Chuck came into Western Digital at a time when there were some very dark clouds on the horizon,” said Robert E. Greene, the senior credit officer for First Interstate Corp. “From our standpoint, he did an exceptional job.”

But as Western Digital grew, Missler was less successful at keeping it on a steady course. By 1981, the company was foundering and again losing money. For 1982, the firm lost $7 million on sales of nearly $35 million.

A Falling Out

Missler hired Roger W. Johnson as president and chief operating officer in 1982. In a 1984 interview, Johnson decribed Western Digital under Missler as a company with a good reputation for technology and a terrible reputation for execution. Missler and Johnson eventually had a falling out over business strategy and, after Missler quit the company, over which of them deserved credit its turnaround.

“Chuck is not an operations guy and doesn’t have good attention to detail,” says a former Western Digital executive. “That’s his shortfalling.”

Missler’s main contributions to Western Digital, observers said, were developing promising technologies and hiring good managers such as Johnson. Missler was largely responsible for Western Digital’s decision to enter the growing market for controller chips, which manage data and communications in personal computers. The company’s controller business has propelled Western Digital’s growth into a Fortune 500 corporation today.

Missler resigned his job at Western Digital in 1983, but he left a wealthy man, having cashed in $5 million worth of company stock options.

But Missler, who describes himself as a “compulsive workaholic,” did not rest on his laurels for long. He decided to join Helionetics, a small defense contractor with a promising laser technology and a board of directors that read like a Who’s Who of military and government bigwigs--among them former U.S. Treasury Secretary William Simon and Edward Teller, the physicist who was a key figure in the development of the hydrogen bomb.

‘Possible Excitement’

“It was an incredible board of directors,” Missler said. “It looked like fun. Here was a company hanging by its fingernails but with some real possible excitement.”

But not the kind Missler had envisioned.

After he joined Helionetics in late 1983, Missler was boasting that the company--then a $20-million business--would hit $100 million in sales within a few years. Instead, it began a rapid descent into bankruptcy.

Helionetics “was a serious mistake,” Missler said. “It singed me badly.”

Some former Helionetics executives said Missler bears a large responsibility for the company’s troubles. Missler acquired several companies that turned out to be money-losers, contributing to the company’s downfall. Helionetics filed for Chapter 11 bankruptcy in July, 1986, but it emerged earlier this year.

Charles W. Jobbins, a Helionetics co-founder and director during Missler’s days at the company, claims Missler was more interested in promoting the company’s “glamorous” businesses, such as a high-energy laser technology that had potential for use in submarine communications. He paid little attention, Jobbins said, to its largest and most profitable unit, which made power converters for the military.

Sued by Helionetics

“He pushed managers into making larger projections than they could intelligently make,” Jobbins said. “It would sound to the board like business was booming when it actually wasn’t.”

Missler contends that some of the unsuccessful acquisitions predated his arrival. He also says that his efforts to raise financing were thwarted by Bernard B. Katz, Helionetics’ co-founder and largest shareholder. Katz declined to comment.

Missler left Helionetics in December, 1984. The company filed a conflict-of-interest suit against him in 1985. The suit alleged that Missler rejected a plan to have Helionetics acquire Resdel Industries, then used his insider’s knowledge to snatch up the company for an investment firm he controlled. That investment firm was the predecessor to the Phoenix Group. Missler’s firm settled the suit by agreeing to pay Helionetics a maximum of $1.6 million over a 10-year period.

Missler contends that he and other Helionetics executives rejected the Resdel takeover because it did not meet Helionetics’ acquisition criteria. He calls the Helionetics lawsuit “contrived” and said that he only agreed to settle it because the pending litigation was making it difficult to raise financing for Resdel.

Resdel has been a headache for Missler ever since.

Losses for Resdel

Resdel, now Phoenix Group’s largest subsidiary, reported a net loss of $8.3 million on revenue of $22.5 million for last year and expects to report another money-losing year for fiscal 1989, which ended June 30. Resdel’s financial problems earlier this year became so severe that it fell behind in its repayment of bank loans and its SanBar division was threatened with eviction from its offices for non-payment of rent.

Resdel’s financial woes forced the company to sell its largest division, Resdel Engineering of Arcadia, which accounted for more than 75% of Resdel Industries’ revenue last year. Dowty Group PLC of Britain bought Resdel Engineering for about $5 million earlier this year. SanBar, an Irvine telecommunications company Missler acquired in 1987, is Resdel’s other operation. The SanBar unit has been struggling, reporting an operating loss of $4.9 million on revenue of $4.7 million for last year.

Missler in June spun off SanBar into a separate company that will be controlled by the Phoenix Group.

Relationships Questioned

The relationship between outside companies controlled by Missler and his role as chairman of Resdel has raised some eyebrows.

Missler companies have received hefty payments for providing Resdel with a range of services, among them leasing computer equipment and office space to Resdel and supplying various management services, federal filings by Resdel and the Phoenix Group show.

In 1987 and 1988, Phoenix received a total of $626,000 for providing “acquisition and consulting services” for Resdel, including arranging the sale of Resdel Engineering. During those same two years, Phoenix received $480,000 for supplying “a broad range of management services” to Resdel.

Another Missler-controlled company, Newport Leasing, leased computer equipment to Resdel at a cost of $5,767 per month until December, 1987. Another Missler affiliate provided all of Resdel’s insurance coverage in 1988, according to company documents.

The various transactions between Resdel and Missler’s outside companies stirred up trouble on Resdel’s board of directors.

“There was considerable conflict about this,” said one former Resdel director. “I finally left the company because of the conflicts. I felt that the interests of customers, shareholders and employees were not being properly served by these actions.”

Actions Defended

Missler said all of the transactions were approved by Resdel’s directors, and he contends that there were no conflicts of interest involved. Resdel’s weak financial condition made it difficult for the company to obtain credit or to pay for investment banking and other management services at going market rates, he said.

“We had Peat Marwick Main,” Resdel’s independent auditor, “go through these transactions very carefully and make sure we were doing it as fairly as we could,” Missler said. “And we had a strong board of directors that examined all these things.”

Resdel’s financial problems may take on less importance if Missler’s Phoenix Group can make the Soviet computer deal fly.

Phoenix is an amalgam of small technology companies in which Phoenix Group owns a partial or controlling interest. In addition to Resdel, its subsidiaries include American PC Corp., a small maker of personal computer components, and Netcom Research Inc., a small firm specializing in computer networking gear.

The Phoenix Group’s various holdings are displayed on an impressive wall placard hanging just inside the entrance to the company’s offices. Under the headings of Phoenix Group “subsidiaries, affiliates and joint ventures” are listed more than a dozen names.

Motives Are Issue

It lists, for example, “AT&T;/Kuwait” and “GCEL/India” as affiliates. A Phoenix official asked about these said that they describe deals that are being negotiated but are not yet firmly in hand.

Such hyping of Phoenix is one thing that is leading some industry experts to question the Soviet computer deal. Some industry and trade experts suggest that perhaps the Soviets are using Phoenix to gain more leverage in negotiating a similar contract with a larger computer maker.

Phoenix officials say privately that Western Digital has been aggressively pursuing a deal with the Soviets. Western Digital officials declined to comment on the possibility of discussions with the Soviets.

Missler scoffs at any suggestions that the Soviets will not follow through on the venture or that another computer maker is waiting in the wings to steal the deal.

“We believe the Soviets are being quite sincere with us,” Missler said. And all the skepticism about the deal has made the small Phoenix staff, which he compares to “an old combat unit,” more determined than ever to succeed.

“The entire industry was betting against us on this,” Missler said. “There is nothing that unites people more than to have spectators who say it can’t be done.”

MISSLER’S TRACK RECORD Charles W. Missler’s experience as, in his words, a “turnaround visionary,” includes some of Orange County’s best-known high-tech companies.WESTERN DIGITAL

Missler was hired in 1977 to rescue Western Digital, which was unable to repay more than $6 million in bank loans. He resigned in 1983. Figures in millions.

Year Sales Net Income (Loss) 1978 $6.9 ($0.5) 1979 10.3 0.01 1980 20.6 0.5 1981 24.5 (0.6) 1982 33.3 (7.1) 1983 51.0 0.4

HELIONETICS

Missler joined Helionetics in October, 1983, and resigned 14 months later.

Year Sales Net Income (Loss) 1983 17.1 2.3 1984 27.3 0.6 1985 12.0 (22.4)

RESDEL INDUSTRIES

Missler bought a 51% interest in Resdel Industries in January, 1985.

Year Sales Net Income (Loss) 1985 $8.6 $0.2 1986 14.2 1.7 1987 17.1 1.8 1988 22.5 (8.3)

Sources: Western Digital Corp., Helionetics and Resdel Industries