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U.S. equity firm in bidding for troubled Technicolor

San Francisco private equity shop Vector Capital Corp emerged last week as a leading contender to become the biggest shareholder in troubled French film and video production equipment maker Technicolor SA, trumping an investment deal already agreed with J.P. Morgan Chase & Co.

The news came as Technicolor confirmed that its set-top box factory in the French city of Angers had gone bust, removing its last manufacturing facility in Europe.

Technicolor had been trying to find a buyer for this loss-making STB business, but no compelling offers emerged, which was not surprising given that Technicolor CEO Frederic Rose himself admitted earlier this year that the factory suffered from high production costs. However, there has been interest in Technicolor as a whole given it still has a strong global STB presence. Until recently, it ranked number three in the world for global STB shipments according to most surveys, behind Pace and Motorola in that order and ahead of Cisco, although Netgem of France and ADB of Switzerland are strong in the fast growing hybrid sector.

But, costs have been escalating and the French factory closure reflects both Europe’s economic troubles and softening global for mainstream STBs, with a swing towards hybrid boxes. In its latest results, Technicolor reported that its recovery plan for its Connected Home division, which produces the STBs, had begun to work, with costs at its factory in Manaus, Brazil down by 2 percent. The group has been streamlining global functions, with the French closure being part of that, along with transfer of R&D capabilities from the US and Europe to China and India.

Meanwhile, Vector Capital, a specialist in technology investments, said it would offer €1.90 per share for 17.5 percent of Technicolor and then subscribe to a rights issue at €1.56 per share to increase its stake to just under 30 percent from 0.6 percent, spending up to €186 million ($280 million).

Earlier, J.P. Morgan on May 3 agreed to pay €1.60 per share for the initial stake and then participate in the rights offer at the same €1.56 price as Vector. Both J.P. Morgan and Vector said the rights offer would be open to existing shareholders, but that they would guarantee buying enough shares to boost their stake to under 30 percent.

"With our experience in technology and digital media, we will help the company to emerge intact, stronger and much better positioned in the global technology marketplace," Vector Capital chief investment officer Alex Slusky said in a statement.

Technicolor, headquartered in Paris and formerly known as Thomson SA, would use the cash from the Vector investment to pay down debt and invest in new products.