Packard Bell And Nec Plan Merger Personal Computer Deal Valued At $300 Million

NEC Corp. will merge its personal computer operations outside Japan with Packard Bell Electronics Inc. in a deal valued at about $300 million, the companies said Tuesday.

Annual revenue for the combined entity will be about $8 billion, making the company the world’s fourth-largest PC maker after Compaq Computer Corp., International Business Machines Corp. and Apple Computer Inc.

Had Packard Bell and NEC been together in 1995, it would have led U.S. sales of personal computers. Packard Bell alone was the No. 2 seller after Compaq in the United States last year. The company’s market share slipped during the first quarter of this year, however.

The deal builds on NEC’s previous investments in Packard Bell, including the help it provided with a merger in February of Packard Bell and Zenith Data Systems Inc.

The combined company will be called Packard Bell NEC and be led by Beny Alagem, chief executive of Packard Bell. He said he anticipates the company will go public within two years through the sale of stock.

“Our commitment to world-class technological innovation, efficiency, quality and service is enhanced by NEC’s management team and its track record for technological advances and engineering quality,” Alagem said in a statement. “With this and other recent initiatives, Packard Bell NEC is poised for phenomenal growth over the next five years.”

His appointment is a surprise to some observers of the PC industry who had speculated that the much larger NEC would eventually take over Packard Bell and install its own managers.

“Many people bet he wouldn’t last,” said Aaron Goldberg, analyst at CI-Infocorp. “It’s a real tribute to him. As long as he’s in charge, you can expect an aggressive posture from the company.”

Founded in 1987, Packard Bell spent several years at the margin of the PC industry, concentrating only on retail sales. When consumers started buying PCs at the rate of corporations in the early 1990s, its growth exploded as its lower-price strategy distinguished it from rivals.

The Sacramento, Calif.-based company has operated on low profit margins and, after an attempt to go public in 1993 failed, has looked for other investment help to sustain its growth. Late last year, it received help from supplier Intel Corp. in the form of payment deferral.

Groupe Bull, which owned Zenith Data Systems, acquired a 20 percent stake in Packard Bell three years ago. NEC made a similar investment last year. NEC also owns 17 percent of Groupe Bull.

The new company’s marketing job is complicated. It will continue selling machines under three different brands - Packard Bell, NEC, and Zenith Data Systems. In Asia, it will market only Packard Bell and Zenith Data Systems branded products.

Each has a reputation in distinctive markets - Packard Bell with consumers, Zenith Data with government buyers and NEC in business.

“Maintaining all the brands will be one of the most difficult tasks in the PC business right now,” Goldberg said. “It would not surprise me to see them do some consolidation in time.”

NEC is the largest seller of PCs in Japan, where about half of its sales are machines that are designed differently than PCs common in the rest of the world, which chiefly use Intel Corp. microchips and Microsoft Corp. operating software.