Dec 15 1998 4:21PM - Bloomberg News
Philips Elec in Talks With Gen Instrument, People Say (Update3)
Philips Elec in Talks With Gen Instrument, People Say (Update3)
(Adds analyst comment. Updates shares.)
Horsham, Pennsylvania, Dec. 15 (Bloomberg) -- Royal Philips Electronics NV, Europe's largest consumer electronics maker, is in talks to buy General Instruments Corp. or form a joint venture with the largest U.S.
maker of cable TV set-top boxes, people familiar with the negotiations said.
They said no agreement is certain and other companies have approached General Instrument about buying it or creating a joint venture. There has been speculation that Lucent Technologies Inc. and Cisco
Systems Inc. were interested in buying a stake in General Instrument, which has a market value of $5.7 billion.
General Instrument is benefiting from cable TV system upgrades and sales of its digital set-top boxes. They provide more than a hundred channels and telephone, cable modem and Internet connections. The
Horsham, Pennsylvania-based company has 60 percent of the U.S. box market and orders for 15 million digital boxes. Philips is a major TV and set-top box maker.
''General Instrument is a valuable asset if you believe that cable is going to be the way to go for entertainment and communications in the future,'' said Lawrence Harris, a Josephthal & Co. Inc. analyst who has a
''strong buy'' rating for the company.
''They enjoy a leading market share position in the cable equipment industry, particularly in the digital set-top arena.''
He said prospective buyers or joint-venture partners may be looking at the potential market for digital cable boxes, and its emergence as the home network appliance for television, telephone service, Internet
access and shopping online.
Set-Top Boxes
Digital cable boxes are replacing analog boxes as the enhanced cable service is offered to the almost 70 million U.S. homes that subscribe to cable TV. Box makers and consumer electronics manufacturers are
expected to start selling boxes to consumers sometime in the next two years.
General Instrument's customers, including No. 2 cable system operator Tele-Communications Inc., have reported that the demand for digital set-top boxes is growing at a faster rate than anticipated. General
Instrument last year received $4.5 billion in orders for digital boxes from Tele-Communications and eight other cable operators.
''Philips has a set-top box business in Europe, but they haven't been able to enter the market in the U.S. successfully,'' said Steven Levy, a Lehman Brothers Inc. analyst who maintains a ''buy'' rating for General
Instrument.
General Instrument declined comment. Shares rose 3 9/16 to 34 1/8 after earlier reaching 34 5/8, a 52-week high. Philips said it hadn't made an offer and declined to comment further.
Philips
Earlier this month Amsterdam-based Philips received $6.15 billion and 12 percent of Canada's Seagram Co. for its 75 percent stake in PolyGram NV, the world's largest music company.
A complete buyout of General Instrument shares might be difficult given the company's ownership structure.
Tele-Communications owns a 12.4 percent stake in General Instruments and unvested warrants for the right to buy 21.4 million shares. The New York buyout firm Forstmann Little & Co. has a 12.5 percent stake
and Sony agreed to buy a 4.3 stake earlier this month for $187.5 million.
Forstmann Little in September canceled its planned sale and distribution of 21.7 million shares of General Instrument stock after U.S. markets plunged. Tele-Communications holds the first right of refusal to buy
Forstmann Little's block should a third party make an offer for it.
General Instrument has hired Merrill Lynch & Co. to advise it. --Greg Wiles in San Francisco (415) 743-3518 and Dylan Ratigan in New York (212) 318-2606 with reporting by Ben Richardson in London/pkc Story
illustration: To graph General Instrument's stock performance in the past year: GIC US |
