Thomson: No Sale

Bidding will start anew for the defense-electronics giant

Selling off bankrupt state-owned companies to the highest bidder is generally a routine affair in Europe. France is a big exception. Government officials in Paris still buckle when confronted with the raw force of economic nationalism. On Dec. 3, a state privatization commission, unnerved by recent protests, nixed the sale of ailing state-owned defense and electronics giant Thomson to Lagadere Group and Korean partner Daewoo Corp.

The commission's decision could suspend any deal for months. But it could also be a disguised move to push Daewoo to up the ante for taking over troubled subsidiary Thomson Multimedia. Prime Minister Alain Juppe had signed off on the sale of the unit to Daewoo for a symbolic franc.

ROUND TWO. Suffocating under $3.4 billion in debt, Thomson Multimedia was unsalable without a $2.2 billion recapitalization, promised by Juppe. Daewoo was willing to invest more than $1 billion to help recapitalize the company, build up production in France, and create 5,000 new jobs. But the French public doubted that Daewoo would keep its promises.

Now, government officials say the bidding process will begin anew. Lagadere and Daewoo may bid together again, but Daewoo will have to sweeten its bid to counter the tide of public opinion. Reflecting public ire, the privatization commission also noted in its decision that France may be the economic loser if it gives high-technology expertise to the Koreans. Daewoo will likely have to come up with stronger guarantees on jobs and technology transfer to counter this objection. Government officials are hinting that Lagadere will be able to go ahead with its plan to create a European defense giant by acquiring Thomson's defense unit, Thomson-CSF.

Lagadere and Daewoo may yet triumph. But Alcatel Alsthom, the only other suitor for Thomson, is also expected to enter the second round of competition. It has its eye on both the defense and consumer-electronics units. In the end, the turnabout may mean a deal that wins more political points for Juppe. But flip-flopping is sure to leave investors confused.

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