GE Selling TV, Electronics Business to French Firm

General Electric Co. will sell its consumer electronics division, maker of the RCA television sets that have been a standard in American living rooms for 40 years, to an electronics company owned by the French government.

In return, GE executives said Wednesday, the French electronics giant Thomson S.A. will sell General Electric its medical products division and pay an estimated $800 million in cash.

The deal will give GE a No. 1 position worldwide in the fast-growing, highly profitable medical products market, while bailing the company out of a business that has been struggling with slower growth and sharp competition from lower-cost overseas Asian manufacturers, company spokesmen said.

Acquiring GE- and RCA-brand television sets, videocassette recorders and audio equipment will make Thomson one of the world’s three largest consumer electronics manufacturers, and the deal will provide it with better access to the U.S. market for Thomson-brand products.

“It’s a deal that benefits both companies,” John Welch, GE’s chairman and chief executive, said at a meeting for securities analysts in Manhattan.

The transaction is another step in Welch’s long-term plan to take the diversified Fairfield, Conn.-based company out of slower-growing, lower-profit businesses into high-technology manufacturing and service markets. In the last six years, GE has sold 11 major businesses and more than 222 smaller ones, while acquiring 14, including RCA Corp., which it bought in late 1985 for $6.4 billion.

The consumer electronics division, with 31,000 employees and 17 manufacturing plants, was on a list of slower-growth businesses that GE has said were not part of its long-range strategy. Also on that list are GE’s oil, semiconductor and trading businesses.

But Welch brushed aside suggestions that the Thomson deal was a setback for the 31,000-employee consumer electronics division or represented the loss of the “heart” of the company that Thomas A. Edison founded 109 years ago.

He said he visited the consumer electronics manufacturing center in Indianapolis Tuesday night and found managers and union representatives of the division “upbeat” at the news.

“They’re no longer a stepchild,” he said. “They belong to a top supplier . . . a company that’s committed to staying in the business.”

To Get Royalties

GE will get $800 million in cash for the consumer electronics business, which has sales of about $3 billion a year, according to Nicholas Heymann, analyst with Drexel Burnham Lambert. It will also receive an estimated $150 million over the next five years in royalties and license fees from its GE and RCA consumer products, Heymann estimated.

Thomson’s medical products division, called CGR, has annual sales of about $700 million, while its consumer electronics arm does about $3 billion in sales yearly. The $6-billion-a-year consumer electronics giant that will emerge from the deal will rival Philips N.V., the Netherlands firm, and Matsushita of Japan as the world’s largest, GE spokesmen said.

GE has the largest single slice of the U.S. color television market, with a 23% share for its GE and RCA brands. The two brands together are also No. 1 in U.S. videocassette recorder sales, with a 17% share.

Yet the consumer electronics business has been barely profitable and its worldwide growth has fallen far short of the standards set by Welch.

GE’s brand will continue to be seen by consumers on the company’s major appliances, light bulbs and other lighting equipment. As part of the agreement, Thomson may use the GE brand name for 10 years and the RCA brand name indefinitely.

Thomson’s medical products business has also been only “modestly profitable,” after falling behind in a number of key technologies in recent years, Welch said. But the business is strong in the European and South American markets, which promise faster growth than the U.S. markets.

Demand for medical products has been growing at a rate of about 2% a year in the United States but at about 7% outside the United States in recent years, he said. The merger of the two medical products businesses will produce a firm with a worldwide market share of nearly 25%.

Most of the Thomson division’s sales have been in medical-imaging products, such as CAT scanners and magnetic-resonance equipment.

Each company will maintain a 19.9% interest in the business it is selling, to promote a smooth transition, they said. Welch said that Thomson’s one-fifth ownership of CGR would ensure that GE will have only minimal difficulties in reorganizing the company and beginning to market its medical products in France and Europe.

Welch said GE intends to make the French division profitable by “rationalizing” its operations--a process that will presumably include many layoffs as well as reorganization. He said that, while the French government has traditionally sought to provide the fullest employment possible, the administration of Premier Jacques Chirac is recognizing the need to adapt to market conditions.

“The old rules are no longer the rules of the road” in Europe, he said.

Thomson’s CGR division has 6,600 employees worldwide.

The transaction involves also the formation of a new company to fund consumer electronics research and to own and license consumer electronics patents. The David Sarnoff Research Center at Princeton, N.J., founded and run for decades by RCA, will provide the basic research for the new company.

GE will begin as the majority owner of the new firm, but majority ownership will shift to Thomson over the next few years.

Drexel’s Heymann said the move was an astute one for General Electric. “This has further upgraded GE’s portfolio of assets,” he said.

Heymann said it made sense to the French because they seek access to the U.S. market.

Will Add to Earnings

Welch said the deal would add a few cents a share to GE’s earnings almost immediately but did not represent a major change in the company’s financial prospects. “This is not a deal that’s going to knock the Street apart,” he said.

Welch said the idea of the transaction was his and that he had approached Thomson Chairman Alain Gomez in the first week of June. The French government gave its final approval last Monday, he said.

The agreement is subject to a variety of government approvals, but the companies said they expected the transaction to be completed by the end of the year.

Thomson, with 1986 profits of $265 million on revenues of $9 billion, also makes defense electronics products and electronic components. GE, with interests in a wide range of products and services, made $2.5 billion on $37 billion in revenues last year.

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