Microsoft/others buy stakes in Thomson...............................
news.com
Microsoft, others to buy Thomson stake
By Bloomberg News
Special to CNET News.com
December 2, 1998, 6:15 a.m. PT
URL: news.com
Microsoft and three partners will pay $318 million for about a third of French state- owned Thomson Multimedia to help the world's No. 4 consumer electronics maker develop technology for television.
The companies, including Hughes Electronics' DirecTV unit, Japan's NEC, and France's Alcatel SA, will each pay $79 million for a 7.5 percent stake, Thomson Multimedia said. Its employees will be offered 3 percent of the company in 1999. An initial accord was announced July 30.
The transaction values Thomson Multimedia, the biggest TV maker in the United States with the RCA and GE brands, at about $1.1 billion and gives it the muscle to help its push into interactive TV equipment and services. It follows an 11 billion-franc state bailout after workers and voters blocked plans to sell the unprofitable company for just one franc in 1996.
"These investors will help Thomson Multimedia maintain its leadership in innovative television technology," said Josh Bernoff, an analyst at Forrester Research. "There's hardly any profit left in selling equipment to consumers."
By 2002, some 3 million U.S. households are expected to be equipped with digital TV sets or digital decoders, according to Forrester Research. That year, an estimated 1.7 million digital TVs will be sold in the United States and 300,000 digital decoders, up from 40,000 digital TVs this year.
Separate accords
As prices for consumer electronics products continue to fall, Thomson Multimedia, Europe's No. 2 after Royal Philips Electronics NV, is turning toward interactive services to generate growth. For example, it earns revenue from the ads placed on the electronic program guide it integrates in its television sets and is pushing into Internet services.
As part of the sale, Thomson Multimedia formed separate alliances with each of the four partners, covering the development of hardware and software to provide interactive television services as well as the services themselves.
The sale gives the company, the world's biggest maker of digital television signal decoders, access to Microsoft's WebTV technology. The world's biggest personal computer software maker is trying to set the standard for interactive television with its operating system, Windows CE.
The French company will work with DirecTV, one of the U.S.'s biggest direct broadcast satellite companies and Thomson's biggest set-top box client, to develop new products and services for the satellite television market. It will extend an alliance with NEC on developing flat-panel plasma screens to digital video disc players. And with Alcatel, it will work on telephones with integrated Internet browsing screens.
"The addition of these four strategic partners culminates two years of effort to turn the company around and redefine our key strategic directions," said Thomson Multimedia chief executive Thierry Breton. "Thomson Multimedia is now positioned to play a key role in tomorrow's home entertainment industry."
Once worthless
The sale contrasts sharply with plans in 1996 to sell Thomson Multimedia for a nominal one franc to Daewoo Electronics. At the time, then Prime Minister Alain Juppe said Thomson Multimedia, saddled with 15.5 billion francs in debt, a decade of losses and losing market share to Asian rivals, "wasn't worth anything."
After canceling the sale, Juppe's center-right government pledged not to try again until it injected more capital and turned Thomson Multimedia around. In March last year, just before losing national elections to a Socialist-led coalition, it named Breton, second-in-command at former state-owned computer maker Bull SA, to head the company.
Breton, 43, played a key role in helping Bull sell its unprofitable personal computer business Zenith Data Systems and bring in industrial partners, including Motorola of the United States and NEC.
Now, Thomson Multimedia's efforts to slash purchasing costs, streamline production--it's closing some plants in Europe and the United States and moving them to Asia and Mexico--and reorganize its sales network have started paying off. The company met its goals for 1997 and is on its way to posting its first profit next year.
Last year, it lost 2.78 billion francs compared with a 3.4 billion-franc loss in 1996, while returning to a profit at the operating level of 143 million francs. It also slashed its debt to 5.6 billion francs at the end of 1997, from 15.5 billion francs previously.
Union concern
Still, French labor unions at the company said they planned to abstain from yesterday's board vote to approve the sale. As well as being concerned about any job losses, they are worried the sale is a first step toward selling shares of the company on the stock market.
"The project is understandable because Thomson Multimedia couldn't make it alone," said Paul Hamon, an electronics industry representative for the CGT union and a Thomson SA board member. "But there isn't sufficient visibility on what it means for the future of our company."
"We have some reservations concerning the size of our new partners--they are mastodons, giants," he said.
Union officials said the government had promised to maintain control of Thomson Multimedia for at least two to three years.
After the sale, which consists of new shares, state-owned holding Thomson SA will own 70 percent of Thomson Multimedia's 45.95 million shares. Thomson also owns the state's stake in Thomson-CSF, Europe's biggest defense electronics company.
The sale will be completed tomorrow after a shareholders' meeting. Each partner will receive one seat on the board of directors.
Copyright 1998, Bloomberg L.P. All Rights Reserved.
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