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Neil Young & Lionel Trains


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Lionel finances divide friends

Patrick Fitzgerald / Dow Jones Newswires

WASHINGTON -- Mike Wolf remembers the night rock star Neil Young came to a party at his house and stayed up all night writing a song.

"He woke up in the morning and said, 'Hey man, I was feeling so good last night and I wrote a song,' " Wolf recalled in an interview. ' "It's a great song. I don't know what I'm going name it yet but I'll let you know.' "

Wolf, the founder and chief executive of MTH Electric Trains, is sitting behind his desk in his Columbia, Md., office. He reaches up to a shelf behind his desk and pulls down an autographed Neil Young CD. It says: 'Mike, I wrote "Harvest Moon" at your house.' "

Today, the two men rarely see each other, their friendship soured by childhood hobbies that grew into business obsessions. The break-up shook up the toy-train industry and touched off a legal struggle that put one the country's best-known toy companies into bankruptcy.

"Grown men fighting over toys, is how I'd describe it," said Allen Miller, editor-in-chief of O-Gauge Railroading magazine.

The parties with Young, the singer-songwriter responsible for such 1970s hits as "Heart of Gold," ended in the mid-1990s when Wolf's company began to challenge the country's dominant model-train maker, Lionel LLC, based in Chesterfield Township.

Young, himself an avid train hobbyist, had become a big investor in Lionel by then.

"After that point we didn't see each other anymore," said Wolf, a 47-year-old who has been involved in the model-train business most of his life.

Young, who declined to comment through a spokesman, got involved in the business in the 1970s. Young, who has two sons with cerebral palsy, developed a remote-control system to help his son Ben operate the trains, according to Jimmy McDonough's "Shakey," a 2002 biography of the musician.

MTH grew steadily by building reproductions of classic Lionel trains. By the mid-1980s Wolf had moved his business out his parents' home to a warehouse. It was there he first met Young.

Young was performing at the nearby Capital Center and asked if he could stop by and take a look at the trains. The clean-cut Wolf, who favors khakis and polo shirts, admits to being a little taken back by the famously spaced-out Young.

MTH began making trains for Lionel under the Lionel Classics line. But Wolf's relationship with Lionel ended abruptly in 1993 when the company canned him at the big annual train show in York, Pa. Richard Kughn, Lionel's owner, had discovered Wolf planned to make a replica of Lionel's Dash 8 locomotive and to sell it under the MTH brand.

Young later teamed with late ex-Paramount Communications chief Martin Davis to buy Lionel from Kughn in 1995. The Davis estate owns 80 percent of Lionel. Young owns a 20 percent stake.

During the 1990s, MTH, with manufacturing operations based in Korea, continued to grow and began to challenge its larger more established rival.

By the end of the decade MTH had sales of some $60 million, and Lionel had followed Wolf's lead and moved much of its manufacturing operations to Asia.

In 2000, MTH sued Lionel, accusing it of selling trains based on designs that had been stolen from a South Korean supplier that worked for MTH. MTH also sued Lionel for $17.5 million, accusing it of using MTH's patented smoke-puffing technology for model steam engines.

The two sides reached a tentative deal in October, according to Jerry Calabrese, Lionel's chief executive. Financial terms weren't announced, but it is expected to be less than the $38.6 million the jury awarded MTH.

The litigation has been a drag on both train makers, but it seems to have hurt MTH more than its bigger rival. Wolf said MTH racked up $60 million in sales in 2000, the year the suit was filed. Today, MTH's sales are about half that.

Despite the bankruptcy, Lionel has posted its best financial results "in many decades," according to Calabrese. Last year, Lionel had pretax earnings of $10.8 million on sales of $62.2 million.

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