Packard Bell to Buy Zenith Data Systems
In a deal that would make it the world’s largest personal computer maker, Packard Bell Electronics Inc. said Wednesday that it will acquire a smaller rival, Zenith Data Systems, in a complex deal that would also provide a much-needed cash infusion for the combined venture.
Under the agreement, NEC Corp. of Japan and Groupe Bull of France, each of which already own 19.9% of Sacramento-based Packard Bell, would invest $650 million in the PC maker. NEC would invest $283 million in cash and Bull would turn over the title to Zenith Data Systems, which it acquired in 1989.
The new Packard Bell would have combined sales of about $5.5 billion and a 13% share of the U.S. personal computer market, edging out Compaq Computer Corp., which has a 12.2% share. It would also gain relief from a cash squeeze that has resulted from its aggressive effort to be the price leader in mass-market consumer PCs.
Groupe Bull first invested in Packard Bell in 1993, paying an undisclosed amount for its stake in the privately held computer maker. Last summer, NEC bought its stake for $170 million. Both investors’ stakes would remain the same after the latest transaction, with each receiving convertible preferred stock.
“This is very, very exciting for Packard Bell,” said Chief Executive Beny Alagem. “The acquisition of Zenith will broaden our reach into lucrative new markets like corporations, government and education. And the $650-million investment will allow us to support our growth.”
Part of the money would be used to pay for a plant under construction in Sacramento.
Packard Bell made its mark selling attractively priced and well-packaged PCs for the home. It was a pioneer in reaching consumers through such retailers as Wal-Mart, Circuit City and Price Club, which had not previously carried computers.
But profits in the price-sensitive home market are hard to come by: Larger companies such as Compaq and Hewlett-Packard support their consumer businesses with sales of more expensive machines to business buyers. But Packard Bell, which sells only home PCs, has often found itself short on cash.
In November, chip giant Intel Corp. said one of its top five customers had fallen far behind in payment for microprocessors and that part of the $470 million receivable had been converted into a loan. Although Intel declined to name the customer, sources said it was Packard Bell. At the time, Packard Bell denied that it was experiencing financial problems.
About a quarter the size of Packard Bell, Buffalo Grove, Ill.-based Zenith Data Systems sells PCs mostly to corporations and federal and state government markets, where Packard Bell would continue to sell products under the Zenith brand.
“This gets Packard Bell one step closer to being a viable company,” said Scott Miller, a computer industry analyst at Dataquest Inc., a San Jose market research firm. “Packard Bell was a company walking on the razor’s edge. Zenith has strengths that Packard Bell doesn’t have in larger systems and notebook computers. And it brings to them a very strong engineering team.”
According to sources close to Packard Bell, Alagem would be given autonomy to run the combined company. “NEC is really taking a long-term view about this,” a source said. “He’ll be given a lot of time. NEC wants to make its mark in multimedia and they view Packard Bell as a vehicle to do that.”
Eventually, the investment would convert into equity, and NEC and Bull would have the option to exert control over Packard Bell.
