French Computer Firm Taps IBM as Partner : * Technology: The U.S. firm agreed to buy a 5% to 10% stake for about $100 million in struggling Groupe Bull.
After being courted assiduously by American computer giants International Business Machines and Hewlett-Packard, the French government Tuesday chose IBM as a partner for its struggling state-owned computer company, Groupe Bull.
Under the agreement announced by French Prime Minister Edith Cresson, IBM agreed to buy a 5% to 10% stake in Bull for approximately $100 million and give the French computer company access to its advanced reduced instruction set computing, or RISC, microprocessor technology. IBM and Bull also entered into manufacturing and licensing agreements that they described as having a potential value of “hundreds of millions of dollars per year.”
Although Bull has been a big money loser ($1.2 billion in losses for 1990, $350 million for the first half of 1991), it was considered a very attractive bride by both IBM and Hewlett-Packard because the French firm has a near-monopoly on French government computer purchases and controls approximately 7% of the European workstation market. Struggling for several years, Bull formed a similar partnership with the Japanese firm NEC last year in which the Japanese agreed to buy a 4.7% equity stake in Bull.
Francis Lorentz, chairman and chief executive of Bull, said the company, ranked 10th in the world in computer sales, has 27,000 workstation customers worldwide. By choosing IBM for its RISC technology, Bull gave the American firm a foothold in the important European market. One analyst compared it to one magazine buying another’s subscriber list.
Because Bull, with about $6 billion in 1990 sales, is a majority state-owned enterprise (75% owned by the state, 17% by the state-owned communications company France Telecom), the several months-long competition for the government’s favor had a distinctly political tone. Cresson and her top adviser on computer matters, Abel Farnoux, favored Hewlett-Packard, the Palo Alto-based company that pioneered RISC technology.
According to a report in the French magazine Le Nouvel Observateur, the IBM campaign for Bull included a concerted lobbying effort by elected officials with IBM plants and facilities in their districts. As part of its offer, IBM promised to steer manufacturing business to the Bull plant in Angers, where the plant’s 2,400 employees faced layoffs.
In the end, a government faction favoring IBM and headed by powerful Finance Minister Pierre Beregovoy won the day.
A Hewlett-Packard spokeswoman in Palo Alto blamed political maneuvering for the government decision in favor of IBM. “We are disappointed, disappointed for Bull as well as for Hewlett-Packard. We feel it was a decision made by politicians rather than by businessmen.” said Marlene Somsak, manager of corporate press relations.
