Philips Electronics NV has closed almost all of its own basket cases, but it is in a difficult position with German consumer electronics maker Grundig AG – clearly a major basket case and unlikely ever to turn a profit again unless it abandons manufacturing in prohibitively expensive Germany. The problem is that although Philips has management control of Grundig, it only has 32% of the equity and is answerable to the Max Grundig Foundation. The Dutch company has now had enough, and yesterday set the company adrift to sink or swim on its own. Grundig, which lost a whopping $167m in 1996, says it will now look for new partners, but no-one is likely to want to shoulder the burden of manufacturing in Germany, and most vendors would be delighted to see a competitor disappear from the market. The Grundig board has introduced the needed steps to use the opportunities presented by the changing market for entertainment electronics together with strong partners, the company said, promising more information tomorrow. Shares in Philips jumped 3.3% on the news that Grundig should not be a dead weight for too much longer. Philips will act as a passive minority shareholder and from this year will account for Grundig’s results only on a pro-rata basis related to its 32% rather than consolidating them. Philips said it was making the move as part of its policy to present a single brand in world markets and because of the negative returns – it can say that again – from its investment in Grundig. From 1984 until December 31 1995, Philips lost over $1bn on Grundig, the firm said. Philips is also in talks to unwind its contractual relationship with the Max Grundig Foundation, to which it pays a $28.5m a year dividend and which holds an option to sell Philips the other 68% of Grundig; Philips is now a seller and not a buyer.
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