Emerson Gets Its Batteries RechargedBruce Hager and Pete Engardio
For much of the 1980s, Emerson Radio Corp. seemed to hit all the high notes. Sales soared 827% through 1986 as consumers snapped up its low-cost boom boxes, televisions, and VCRs. But after the stock market crashed in 1987, Emerson's tune went sour. Shareholders accused company officers of insider trading. An ill-timed move into personal computers in 1989 saddled the company with big losses. And personal problems forced President Stephen L. Lane to resign last fall.
Now, a fast-growing multinational electronics distributor called Semi-Tech (Global) Ltd. could be Emerson's savior. In mid-March, the Hong Kong company tentatively agreed to invest $30 million in Emerson. One of the last American consumer electronics distributors, Emerson desperately needs an overseas outlet to survive the thrashing it's taking in the U. S. Semi-Tech could provide that. It owns Singer Sewing Machine Co. and controls a global network of 30,000 electronics and appliance outlets in more than 100 countries.
For Emerson and its Chairman, William W. Lane, however, the deal means ceding control of the 44-year-old, family-run company. While Semi-Tech will buy only 20% of Emerson's stock, it will control a board that now includes former Vice-President Walter F. Mondale.
FULL WAREHOUSES. Lane may have had little choice. The recession has minced pretax income (chart) and bloated Emerson's inventories, which doubled to $182.3 million last year. The North Bergen (N. J.) company, which is switching from a March to a December fiscal year, says losses will top $30 million for the stub year ended last December.
To relieve the pressure, Emerson has been looking for fresh capital and foreign partners. Last September, Fidenas Investment Ltd., a Swiss investment bank, bought a 13.7% stake in the company. And Tomei Industrial (Holdings) Ltd., a Hong Kong supplier, took a 5.2% stake in October.
The Semi-Tech deal is contingent on Emerson's resolving some legal problems. In 1987, investors charged that top Emerson officers profited by selling their own stock while misleading the public about the company's declining financial shape prior to the 1987 market crash. Emerson denies the allegations, but the actions are pending.
The company has suffered image problems, too. Last fall, President Stephen Lane drew fire for not telling shareholders that he suffered from brain and spinal tumors. The news surfaced in an unrelated claim that Lane had filed against Drexel Burnham Lambert Inc. involving personal investment losses in the crash. When Lane resigned in October, older brother William took control.
William played a key role in the Semi-Tech deal. Audio supplier Tomei introduced Semi-Tech Chairman James H. Ting and Lane. The 1989 purchase of Singer helped turn Semi-Tech into a $1.7 billion empire, but its rapid growth and complex structure have given many investors and analysts the jitters. Even so, Ting was looking for another deal that would give him an entree into the big U. S. discount stores. The answer was Emerson's distribution network, which includes mega-retailers Wal-Mart Stores Inc. and K mart Corp.
Emerson offered something more: a hot product-development team in Hong Kong. In 1982, the company mostly made radios. Since then, Emerson has captured 3.8% of the U. S. color TV market as well as 8% of the VCR market. Televisions and VCRs now account for 60% of total sales, and the company competes toe-to-toe on the low end of the U. S. video market against Korean manufacturers such as Samsung Group.
But when Emerson tried to translate that success into home-office equipment such as PCs, things went haywire. The company built up a large inventory in the machines and then watched as the recession scared off low-end buyers. "The timing was not right," admits Kunio Takei, who heads Emerson's product development in Hong Kong.
The new capital provided by Semi-Tech will help Emerson clear up technical defaults on its $200 million in debt. And Dennis C. Van Zelfden, an analyst for Rauscher Pierce Refsnes Inc., estimates the company will earn $9 million this year on sales of $728 million. So thanks to an obscure Hong Kong-based dealmaker with a taste for big American brand names, Emerson may be tuning in on profits again.