Packard Bell Agrees to Sell 19.99% Stake to Japan’s NEC : Deals: The alliance will give the U.S. PC maker much-needed cash and the Asian computer giant access to domestic markets.
Packard Bell Electronics Inc. on Thursday became the second big U.S. personal computer company to ally itself with an Asian electronics powerhouse, agreeing to sell a 19.99% equity stake to NEC Corp. of Japan for $170 million.
The deal will give Packard Bell a much-needed cash infusion and help give NEC, Japan’s dominant personal computer maker, an entree into the U.S. PC market, where it has enjoyed little success. The agreement resembles Korean giant Samsung’s purchase of a 40% equity stake in Irvine-based AST Research earlier this year.
Privately-held Packard Bell, a price leader that has long concentrated on consumer sales and pioneered key retail sales channels, has struggled with razor-thin margins and industry suspicions about its profitability.
In May, 1992, the company shelved an initial public offering that was to raise $70 million in cash. Packard Bell, which recently moved its headquarters from Chatsworth to Sacramento, blamed a weak market, but analysts said the company’s $93.3-million debt made it a risky investment in the eyes of many potential bidders. As a result, they said it was unlikely it could have raised the sum it had hoped for.
The initial public offering was never rescheduled.
In 1993, Packard Bell found another source of cash: France’s Groupe Bull, which purchased a 19.9% stake in the company for an undisclosed sum. At about the same time, Packard Bell secured a $70-million line of credit from Congress Financial Corp. in New York.
Earlier this year, rumors began that Packard Bell was looking for a buyer. Chief Executive Beny Alagem confirmed that the company had been in acquisition talks.
“Yes, we were in discussions,” he said. “Packard Bell made the decision that NEC was the best partner for us. This should remove the rumor of acquisition with any other party.”
Alagem said that the company was profitable in 1994 and “we expect those profits to grow.” He said that the alliance with NEC “did not come from cash needs.”
NEC has spent millions trying to penetrate the U.S. market for PCs, with little success. Although the company set up a U.S. division to sell PCs, many key decisions continued to be made by its Japanese parents. The distance proved a severe handicap: NEC failed to gauge the speed of technological change in the U.S. market.
The deal with Packard Bell gives NEC access to a brand name with a strong following. In addition, NEC will boost its sales of CD-ROMs and memory chips to Packard Bell, and probably begin supplying other items such as liquid crystal display screens for Packard Bell’s PCs. The two firms will also work together to develop multimedia terminals and games or entertainment PCs for the Japanese home market, NEC said.
NEC holds about a 50% share of the $8.7-billion Japanese personal computer market with its PC-98 personal computers, which run on NEC’s own standard and are sold only in Japan.
However, firms such as International Business Machines Corp., Compaq Computer Corp. and Apple Computer Inc. are rapidly expanding in Japan: Foreign-made PCs, which are cheaper and run on world-standard software from Microsoft and others, accounted for 30% of total sales last year.
The new alliance is seen partly as an attempt to respond to this growing competition. Buying into U.S. industry has also become more of a bargain for Japanese firms, with the yen’s value up about 16% since the beginning of the year.
The investment in Packard Bell also completes a triangular relationship with Bull: NEC owns 17% of Bull.
NEC will not sell Packard Bell computers through NEC’s sales network, but rather Packard Bell is expected to establish its own sales network in Japan, NEC spokesman Chris Shimizu said. There is a possibility that NEC may sell some items outside of Japan under the Packard Bell brand, he added.
While Packard Bell had planned to set up a Tokyo subsidiary in September, that plan will now be rethought, Packard Bell Chief Executive Brent Cohen said. He did not provide details.
Last year, Packard Bell’s sales totaled $2.8 billion. Riding the boom in PC sales to consumers, it led the U.S. market in the first three months of this year with shipments of 591,000 units, a share of 12.7%.
But competitors have questioned the company’s finances and the quality of its products, and Compaq earlier this year alleged that Packard Bell was using used parts in PC’s sold as new. Several state attorneys general and the Federal Trade Commission are investigating the allegations.
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Holley reported from Tokyo and Pitta from San Francisco.
