Thomson could look at entry of new investors after debt restructuring

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Thomson, the listed French electronics equipment group, could envisage the entry of new investors into its capital or look at a potential acquirer, but not before the group has solved its debt restructuring problem, Frederic Rose, the new chief executive of the highly leveraged company told mergermarket.

Rose said that “it is possible to have new investors into Thomson equity capital.” He also said he had informal negotiations with the Strategic Fund created by French president Nicolas Sarkozy to lend a helping hand to troubled French companies. But all of that would require cleaning up the balance sheet first, he pointed out.

Another high ranking executive at Thomson said he believed “many private equity companies will be interested in Thomson,” once its debt is restructured and its new strategic plan becomes clear to everyone.

Thomson’s previous chief executive Frank Dangeard publicly contemplated an LBO back in 2006 and 2007. Several investment funds looked into the situation, but no takers were finally found, this news service has previously reported.

Now Thomson is in a sticky situation. The company has officially said it will break the covenants on its debt and has a deadline of end of April for ongoing negotiations with lenders. The group has EUR 2.883bn of gross debt and 2.1bn of net debt. Among creditors, Rose told this news service, are US banks such as Citigroup and Bank of America and European banks which have needed capital from governments such as the UK’s RBS. Also in the pool are Societe Generale and BNP Paribas.

If negotiations fail, lenders can ask for an acceleration of debt repayments. But the company today officially said that if such were the case, it will start “judicial procedures under French law.” Requesting Sauvegarde would “trigger value destruction on both sides,” Rose pointed out. It would be a “lose, lose situation.”

Another source at Thomson described the situation as “having an atomic bomb on both sides.”

As part of the negotiations with lenders, Thomson is in the midst of selling important assets which now generate revenues of EUR 1bn. Such disposals include Grass Valley (broadcast equipment) which has attracted, according to Rose, a great deal of interest from private equity and industrial players. Deutsche Bank is acting as financial adviser.

Also on the block is PRN (point of sale advertising unit), which has attracted some 30 expressions of interest, also from PE firms and trade players, with Goldman Sachs advising.

The group is still looking for an adviser for the sale of the 50% stake it owns in Screenvision, its film advertising unit, Rose indicated.

Thomson’s CEO also said he hoped the divestitures could be done soon; in any case before the end of the year.

After the “refocusing” of operations, revenues of the group will be brought down from EUR 4.840bn to EUR 3.770bn. But under the new parameters the group will still have EBITDA of EUR 488m against EUR 526m now.

Discussions with lenders focus on the “capacity to generate cash” and also on a clear vision of the strategic plan, Rose said. Before, the scope of Thomson’s businesses was hard to fathom by investors. Rose said the company will focus on its content creator customer base, the strength of the Technicolor brand with film and television studios, its set top boxes and its research and licensing capabilities. He sees the company’s main clients as being Walt Disney, NBC-Universal, Viacom, Time Warner, and Vivendi.

He also said that he will not plan to sell the DVD unit. “The death of the DVD is announced every day,” nonetheless, EUR 8bn worth of DVDs were sold last year in the world, Rose said.

The group will make no acquisitions. ”We have no money” Rose emphasized.

Thomson posted full year 2008 revenues at EUR 4.8bn, down 7.7% from 2007. The full year net loss amounted to EUR 1.9bn, including a negative impact of EUR 1.6bn of goodwill and other impairments, write offs and restructuring charges.

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