Sony to form TV pact with NextLevel, invest $188 million
Reuters Story - January 05, 1998 15:41
(Adds analyst comment, details, byline)
By Susan Nadeau
CHICAGO, Jan 5 (Reuters) - Consumer electronics giant Sony
Corp. and NextLevel Systems Inc. said Monday they will join
forces to create advanced digital TV set-top boxes with far
more computing power and capabilities than current models.
As part of the deal, which requires the signing of
definitive agreements and approval by NextLevel shareholders,
Sony will pay around $188 million for about a 5 percent stake
in the cable TV set-top box maker.
The move would give the Japanese electronics giant a
foothold in rapidly changing television technology and in the
cable TV market in the United States.
For NextLevel, which is changing its name back to General
Instrument Corp., the pact would mean access to Sony's
established presence in retail stores. Set-top boxes are
currently provided to cable watchers by cable TV operators.
"In the U.S., cable television will play an important role
in bringing digital television to the consumer," Gary Myer,
president of Sony unit Digital Network Solutions of America,
said in a statement.
Under the deal, Sony will buy 7.5 million new shares of
NextLevel common stock, or about 5 percent of the outstanding
shares, at $25 each. NextLevel stock jumped $1.56 to $19.75 in
consolidated afternoon trading on the New York Stock Exchange.
The price Sony agreed to pay represents a 37 percent
premium over NextLevel's closing price of $18.19 Friday, and is
well above the stock's 52-week high of $21.44.
"It's a significant strategic investment if NextLevel and
the cable operators are able to get the equipment and systems
geared up to support retail distribution of their products,"
said Todd Koffman, an analyst with investment bankers Lehman
Brothers. "That's not the case right now, and it's probably a
couple of years away."
The companies said they were exploring a broader business
relationship and discussing future generations of digital cable
TV devices and high-definition TV products.
Sony technology, such as video game equipment and digital
video disk (DVD) players, may eventually be integrated into the
new set-top boxes. In addition, the boxes will include a
computer modem, allowing for high-speed connection to the
Internet.
"We believe that Sony's expertise in digital consumer
electronics and its strong retail brand complement General
Instrument's strengths, and will certainly be significant
asssets for the development of the next-generation digital
set-top (box) based on GI's platform," NextLevel Chairman
Edward Breen said in a statement.
NextLevel, which is one of three companies that emerged
from a strategic reorganization of General Instrument, said two
weeks ago that most of the nation's leading cable system
operators plan to buy 15 million set-top boxes, valued at about
$4.5 billion, over the next three to five years.
Sony's 5 percent stake in NextLevel would be in addition to
warrants to be issued to cable operators totaling 16 percent of
the company, in connection with that agreement.
Along with its audio, TV and electronics businesses, Sony
owns music, film and video game assets, making it one of the
world's largest entertainment companies. It had fiscal 1996
sales of $45 billion.
Sony stock closed up 200 yen in Tokyo at 11,800.
(--Chicago Equities Desk at 312 408 8787,
(chicago.equities.newsroomreuters.com)
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