Vector Capital enters bidding for Technicolor

San Francisco private equity shop Vector Capital Corp. on Monday, May 28, said it wanted to become the biggest shareholder in French film and video production equipment maker Technicolor SA and trumped an agreed investment deal by J.P. Morgan Chase & Co.

Vector Capital, which specializes in technology investments, said it would offer €1.90 per share for 17.5% of Technicolor and then subscribe to a rights issue at €1.56 per share to increase its stake to just under 30% from 0.6%, spending up to €186 million ($283.6 million).

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%.

"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," said Vector Capital chief investment officer Alex Slusky in a statement.

Paris-based Technicolor, formerly known as Thomson SA, would use the cash to pay down debt and invest in new products. The company is currently working to close its last production site in France, which makes set-top boxes, after emerging from bankruptcy in 2010.

As part of its bankruptcy, creditors swapped about €1.29 billion of a total €2.9 billion of debt for €530 million of shares, €639 million of convertible bonds and €300 million in so-called disposal proceeds notes that were redeemed in December 2010.

Vector's approach pushed Technicolor's shares up 9% to €1.527 Monday and the stock traded slightly higher at €1.528 in early Paris trade Tuesday. The rights issue was priced 10.6% higher than Technicolor's close at the end of April before J.P. Morgan's plans were unveiled.

Technicolor said its board would meet Tuesday to review resolutions related to the Vector proposals that the San Francisco company wants to put before shareholders. Shareholders would vote on the proposals during a June 20 annual meeting.

Both Vector's and J.P. Morgan's proposals stipulate that the respective investor receive two board seats.

Lazard is acting as financial adviser to Vector.