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Head of Phoenix Group Explains Venture Failure : Trade: Chairman Charles W. Missler says sale of computers to Soviet Union fell apart because of lack of capital and problems with the firm's Soviet partners.

December 07, 1990|DEAN TAKAHASHI | TIMES STAFF WRITER

IRVINE — Charles W. Missler, chairman of the beleaguered Phoenix Group International, said Thursday that his venture to sell millions of computers to the Soviet Union fell apart because of a lack of capital and problems dealing with its Soviet partners.

Missler, in his first interview since the Phoenix Group filed for federal bankruptcy protection Tuesday, said the computer sale collapsed earlier this year when the company's Soviet partners failed to make promised cash payments for an initial sale of 770 computers. He said the Soviet partners also failed to abide by agreements to barter Soviet products as payment for additional computer shipments.

And he said bad publicity about the deal hurt Phoenix and its subsidiaries' ability to raise capital to build the computers.

One Phoenix subsidiary, Netcom Research of Irvine, also filed recently for bankruptcy protection from creditors. Netcom was supposed to supply computer workstations for the deal.

"Netcom grew too fast from its domestic orders," Missler said. "The tragedy was we couldn't sell Netcom to investors because people were distracted by the Soviet order . . . . Phoenix began to get in trouble when we couldn't raise working capital to meet its opportunities."

Peter von Braun, a Connecticut businessman who was the architect of the Soviet deal until he and Missler had a falling out in December, 1989, said Missler must share the blame for the deal's failure. The strong-willed Missler, he said, "insisted on running things his way" and "drove away some very talented people working for him."

Von Braun, Phoenix's former vice chairman, said the Soviets were sometimes difficult to work with but aren't solely to blame for the failed venture.

"They're tough but honest people who do not operate in bad faith," he said. "I have to disagree with any imputation that the Soviet government showed bad faith."

Missler said he personally invested more than $500,000 during the past year to try to rescue Phoenix from a worsening cash squeeze.

Missler, a former chief executive of Western Digital Corp. in Irvine, also denied a published report that he has resigned from Phoenix. He said he intends for "moral reasons" to attempt to turn around Phoenix and Netcom.

Asked if the Soviet deal is dead, he said: "I think it's proper to label it that way. However, if Netcom can get on its feet, I think we could revive the relationships in the Soviet Union."

Missler acknowledged that Phoenix never had a formal contract to sell computers to the Soviet Union; rather, he said the company had an informal agreement known as a protocol and a formal joint venture with a Soviet education agency, Soyuz Occhpribor.

Missler said he began cutting the staffs at Phoenix and Netcom earlier this year and fired certain employees who he said made misrepresentations to him. A number of former employees and executives have filed lawsuits against Phoenix.

He said he is the last remaining officer of Phoenix. Fred Little, a former associate of Missler at Western Digital, has taken over as chief executive of Netcom, Missler said.

"Phoenix believes Netcom is worth saving," he said. "Its recovery depends on Netcom's success . . . . I've taken six companies out of Chapter 11, and this is the first one that I have put into it."

Missler's firm gained national attention in September, 1989, when Soviet trade officials announced that Phoenix had been chosen as the U.S. partner in a joint venture to supply up to 6 million computers to Soviet schools and businesses.

Missler said Thursday that the company shipped a dozen demonstration computers to the Soviets, but nothing more.

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