Thomson IPO A Hit With Investors

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Nostalgia buffs wanting a piece of RCA, believers in the digital future, and employees on both sides of the Atlantic all came up with hard cash to buy into the recent initial public offering of Thomson Multimedia (TMM), the French parent of Thomson Consumer Electronics of the U.S.

Those who got in (and out) early were rewarded.

The stock opened on the Paris Bourse at $22.50 and quickly surged to $26.90. In the later trading start on the N.Y. Stock exchange (symbol TMS), it opened at $28.75, climbed to $35 and settled back to $34.75 at the close. But in the second day's trading it closed at $29.50, or $3.25 on the day.

In all TMM sold 21.1 million shares, which raised about $640 million, it said. After the sale the French government retained a controlling 51.7% stake. Current and past employees and managers, who were allowed to buy in at a discount, had 5.5%, and the public (including institutional investors) bought 17%.

TMM's four strategic partners, which each purchased a 7.5% interest last December, were allowed to subscribe to additional shares to minimize the dilutive effect of the offering. Alcatel, Microsoft and NEC bought in, leaving each with a 6.8% interest, while DirecTv declined, and saw its stake drop to 5.2%.

The three who added to their holdings have invested $125 million in TMM for shares, which at $29 are worth about $245 million, while DirecTv has seen its investment rise to $187 million from $80 million, all in less than a year.

Commenting on the stock's opening-day performance, senior executive VP/Americas James Meyer said it was "a great day for our employees because it was they who built this."

He pointed out that it was a French worker revolt three years ago that kept France from giving TMM to Korea's Daewoo Electronics in exchange for debt assumption. At that time, Meyer said, "we told our employees that if they would fight with us and make things happen, we would make value together." The credit for the successful turnaround in TMM's fortunes goes to its workers, "from those who answer the 800 number right throughout line workers and our engineers."

Employees put out more than effort, said Meyer, "they have invested $80 million of their own money" in TMM stock. "That's not options or retirement funds, that's real money out of their pockets. I think that will give this company a real edge up. We are in 50 countries with as many currencies, but we now have one common currency: TMM stock."

Of equal importance, he said, with the completion of the offer TMM will be debt free, "and every time I think of it I get a big smile on my face." In addition to the stock proceeds, "a good chunk of it has come from significantly improving working capital and another chunk from improving our inventory position, and in this business inventory is a killer."

By way of showing off its new position, in the fourth quarter Thomson Consumer Electronics "will run the biggest RCA ad campaign in at least the past 10 or 15 years. We are very gung ho on RCA, and we are investing heavily in that -- and I think that's crucial to our long term success."

Just how important the RCA brand is to TMM as a whole is shown in the stock offering prospectus figures indicating the U.S. market accounted for 60% of the company's $6.3 billion in total sales last year and 73% of TV and video product sales. Of U.S. TV/video sales of $2.3 billion, RCA-branded product accounted for 69%.

In the U.S. the document said, TMM accounted for a 21.6% share of the TV market, 19% of VCRs, 16% of camcorders, 12% of the audio market, and 13% of the market for home telecommunications products. TMM had a 15% share of the U.S. DVD player market in 1998 and increased that to 26% through the first half of this year.

TMM's share of the TV and VCR markets is expected to decline somewhat this year as it backs away from commodity-priced segments in favor of higher-margin products.

As for the RCA brand itself, the prospectus said TMM recently bought an option from GE that will allow it to purchase the RCA brand outright for $6 million in July 2002. While no mention is made of such a plan, the full ownership would allow TMM to utilize the RCA brand internationally and give the company a brand with worldwide consumer recognition on a par with such prime competitors as Philips and Sony.

The prospectus said 59% of U.S. TV/video sales were made through national retailers, with the top 10, including regional chains, accounting for 62%. That list will grow next year under the previously announced agreement making RCA the only non-Tandy consumer electronics brand in RadioShack stores.

In January, RadioShack is to launch a TMM-funded store-remodeling program that will see RCA Digital Entertainment Centers installed in at least 4,000 outlets in the second quarter.

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