Rash's Judgment: Zenith -- How Long Will the Name Go On ?
 
Microbytes Daily News Service
Copyright (c) 1989, McGraw-Hill, Inc.
The proposed sale of Zenith Data Systems to Groupe Bull,
announced last week, holds tremendous import for the
electronics industry in the United States, as well as to the
companies involved and their governments. In what is the
largest sale ever of a personal computer manufacturer,
Groupe Bull of Paris agreed to pay about $635 million US for
Zenith Data Systems, including all of the company's
manufacturing, distribution, and retail business. Zenith
claims that it is the world's second largest manufacturer of
IBM-compatible computers, following only IBM.
 
Both Zenith and Bull claim that this sale will benefit them.
Zenith's parent company, Zenith Electronics Corp., has been
mired in debt for years, a legacy of the television-dumping
wars of the early 1980s. The infusion of cash will allow
Zenith to retire the debt that is making the company
unprofitable and give it sorely needed funds for research into
HDTV and other television technologies.
 
Groupe Bull, on the other hand, badly needs a successful
personal computer line to round out its mainframe and
minicomputer business. Zenith Data Systems, one of Zenith's
major profit centers, has been strapped for cash to develop
and advertise its products, due to the shaky financial
position of its parent. Groupe Bull, which has significant
resources of its own, as well as the backing of the French
government, has no such financial constraints. Bull expects
to pour money into Zenith in just the areas the company
needs. Bull is also expected to give Zenith the entry into the
European markets that it has been seeking for years.
 
Does this mean that all is well? Maybe, but maybe not.
Zenith is best known as the leading supplier of laptop
computers in the US, but it owes its size and success to its
massive government contracts. While Zenith says its federal
business will not be affected, it should be remembered that
Groupe Bull is owned 90 percent by the French government.
It's not clear that federal procurement officers will then
view Zenith as US-owned. It's a safe bet that some of Zenith's
competition will protest any contract that Zenith wins that
has a "buy American" clause.
 
Zenith, of course, points out that the company will remain
chartered in the US, and that its headquarters will remain in
the Chicago area. Company spokespersons point out that
Groupe Bull already owns most of Honeywell's computer
business, and that the government still buys Honeywell
computers. While this is true, the circumstances are not
identical.
 
First, the federal government already had a significant
installed base of Honeywell computers when Groupe Bull
moved in. There aren't any Honeywell mainframe clones.
Zenith makes IBM PC AT clones, which are available as
commodities in the quantities that the federal government
buys. More important, unlike Honeywell, Zenith will be
completely owned by Groupe Bull.
 
This may turn out to be idle speculation. Zenith's
stockholders still have to approve the sale. This may happen,
but there are rumors that AT&T might be quietly making a
counter-offer. If it does happen, there is a possibility that
Zenith Data Systems will become stronger, more dynamic,
and more profitable.
 
There is also the possibility that Zenith Electronics, now
with less debt and profitable, will itself be taken over, that
the federal government will disqualify ZDS, and that the
infusion of cash won't help. That could mean the end of
Zenith.
 
                              --- Wayne Rash
 
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