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Tuesday, February 26, 2002
 Matsushita to sell disc-making unit to TMM
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Message Text: French consumer electronics firm Thomson Multimedia said on Tuesday it agreed to buy the U.S. DVD and CD unit of Panasonic goods maker Matsushita Electric to expand disc production and distribution. Both companies said they had signed a memorandum of understanding for the sale, worth something less than 300 million euros ($261.5 million), which a senior Thomson executive said he hoped to complete by end-March.

Thomson Multimedia expects cost savings within the first 12 months of integrating Panasonic Disc Services Corporation into its existing U.S. audio and video disc subsidiary.

``This will be a very simple and straightforward integration and we should be seeing a few dozen million dollars in operating synergies within the first 12 months,'' Thomson Senior Executive Vice President Frank Dangeard told Reuters by telephone.

``This will improve the cost structure of our DVD business globally and will be accretive for (Thomson) from the start,'' he said, adding that Thomson Multimedia would pay a lower ratio than the 1.1 times sales it paid when it acquired Technicolor.

The U.S. Panasonic unit, wholly owned by Matsushita, has sales of around $300 million. Thomson Multimedia did not provide a comparable sales figure for its existing disc operations.

Analysts welcomed the deal, saying it should bolster profit margins and noted it would reinforce Thomson's business with a key customer, Vivendi's Universal Studios.

``This is a very strategic acquisition for the group because this business is one of the fastest growing among its activities and it has by far the highest margins so the deal should enhance profitability,'' said an analyst at a Paris brokerage.

``It also allows TMM to get to Universal and Paramount, which wasn't easy before because of commercial barriers,'' he said.

Margins at TMM's digital media solutions division, which includes DVDs and CDs, stood at around 17 percent in the second half of last year, compared to around six percent for the group.

For Matsushita, the sale is part of a restructuring drive to restore the sprawling industrial giant to profitability in its next business year after an expected record loss for the current year to March 31, a spokesman said. The Panasonic unit has been producing DVD discs for the entertainment and computer industries since 1996 and supplies a number of Hollywood studios, including Universal and Paramount.

Thomson will take over five plants in the United States, Mexico and Europe and inherit all of the unit's 1,600 permanent employees. Matsushita will keep ownership of a California plant. The Japanese company, which is struggling with sluggish demand for consumer electronics and components, said last week it would speed up plans to shrink, shut or sell some of its assets as needed to boost efficiency and competitiveness.

Last week Matsushita said it expected a massive 438 billion yen ($3.3 billion) consolidated loss for the year to March 31, reflecting a slump in demand for electronics, difficulties in its cellphone business and hefty costs for a voluntary redundancy scheme aimed at paring its bloated workforce.

The company vowed to boost operating profit by 25 billion yen in its 2002/03 year by speeding up plans to shrink, shut or sell operations and facilities. Matsushita's shares, which closed before the announcement, ended up 0.7 percent at 1,586 yen, modestly outperforming a 0.21 percent drop in the Tokyo electrical machinery index .

Matsushita has gained 4.5 percent since last Thursday's earnings and restructuring announcement, which fanned hopes of successful reforms despite upward revisions in loss forecasts for this business year. The shares are down nearly one-third, however, from their 52-week high of 2,350 yen hit last March 26.
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