Hey, hey. My, my. Lionel trains will never die. Has Neil Young
added a new verse to his classic song "Out of the Blue"? Maybe
so. Late last month Young purchased Lionel Trains, the smalltime
toymaker, in partnership with Martin Davis, ex-CEO of Paramount
and now head man at Wellspring Associates, a New York-based
investment firm. Strange to find these two playing in the same
sandbox, you say? Maybe not.

The stated purpose of Davis's Wellspring is to invest in
turnaround situations. Davis bought and sold dozens of companies
at Paramount in its days as a conglomerate called Gulf &
Western, so he's no stranger to the game. And in Lionel he has
found a company ripe for righting. Train sets today are about as
hot as hoola hoops. Kids who once pieced together elaborate
track configurations with their dads are now either twitching
away on Nintendo or mesmerized at some video arcade. Kids want
high-tech stuff, and train set technology has been locked in the
1950s, leaving Lionel helpless, helpless.

Enter Young, a longstanding model-train freak. On his ranch in
Northern California he has a stupendous setup: a
4,000-square-foot barn with tracks that run through extensive
live greenery tended by a mist irrigation system. Young, who
loves fiddling with musical equipment, teamed with Lionel's
outgoing CEO, Richard Kughn--who will retain a minority
stake--to upgrade Lionel's electronics.

And to whom did Young turn for technical expertise? None other
than Silicon Valley heavy Nolan Bushnell, founder of Atari and
Chuck E. Cheese's Pizza Time Theatre. (Bushnell's kids go to
school with Young's.) Young farmed out his project to Silicon
Valley engineers Rick Davis and Ron Milner.

Young's team has created a sophisticated hand-held, wireless
remote, called a CAB-1, which uses a computer chip to move
trains, switches, and accessories--and to control audio, which
includes sounds produced by one of Norfolk & Southern's steam
engines, recorded live by Young and his crew.

Young told MicroTimes, a Northern California computer magazine:
"[Lionel's] technology is now the leading technology in toys. We
have other companies coming to us wanting to use our technology.
The overall goal is to make an advanced toy that brings families
together in a way videogames don't." Heart of gold, that guy.

--Andrew E. Serwer

Fortune, 10-30-1995, pp 21.