Hi-tech turnaround success attracts buyers

TWO years ago, France wanted to sell unprofitable Thomson Multimedia for one franc. Today, Microsoft and other high-technology giants are lining up to buy a piece of Europe's second-biggest consumer electronics company.

After the sale was blocked by outraged workers and voters, Thomson, the maker of RCA-brand televisions, got a $1.8bn bailout from the French government to return it to the forefront of consumer technology - with interactive television.

That has attracted Microsoft, General Motor's Hughes Electronics unit DirecTV, NEC of Japan and France's Alcatel. They agreed last week to buy 30 per cent of state-owned Thomson, which is set to make money in 1999.

"This is a victory for everyone who defended Thomson Multimedia and knew it was doing what was necessary to turn itself around," said Elie Cohen, head economist at France's National Centre for Scientific Research.

The sale will give Thomson access to Microsoft's WebTV technology as the world's biggest personal computer software maker tries to set the standard for interactive television with its operating system, Windows CE.

By 2002, Thomson has said it wants two-thirds of its sales to come from interactive services, up from 15 per cent now. Teaming up with Microsoft should help it achieve that, analysts said.

"We have restored our financial position and now we want to help lead the worldwide digital TV revolution," said James Meyer, Thomson's chief operating officer. "This is the next chapter in multimedia."

Thomson's new partners will also reinforce its link with DirecTV, one of the top US direct broadcast satellite companies. DirecTV is Thomson's biggest client for set-top boxes.

When Alain Juppe's conservative government offered Thomson Multimedia for sale, the company was on the verge of bankruptcy. Saddled with a debt of Fr15.5bn, it "wasn't worth anything", Mr Juppe said.

The company was rapidly losing market share in Europe and prices for its products were falling sharply, as it faced greater competition from Asia. In the US, it was just hanging on to its 20 per cent market share, thanks to its brand names such as RCA.

After cancelling the sale, the government pledged not to try again until it had turned Thomson Multimedia around. And in March last year, it named Thierry Breton, second-in-command at the computer maker Bull, as head of the company.

He made Thomson Multimedia a personal crusade, and his efforts to slash purchasing costs, streamline production, and reorganise 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 Fr2.78bn compared with Fr3.4bn in 1996, while returning to a profit at the operating level of Fr143m. It also slashed its debt to Fr5.6bn at the end of 1997. "For the first time in a long time, the company is keeping its promises," said Mr Breton. "That's eliminated one of the main demoralising factors for our employees."

But the government may still face protest to this week's sale plans, if workers do not like the price the companies agree on. Under a preliminary agreement, the four partners will each buy 7.5 per cent of Thomson through the purchase of new shares.

Mr Cohen expects the sale to value the company at $1.7bn. Thomson and the government declined to comment on a potential valuation before investment bankers study its assets.