(Adds latest share prices, fund manager comments)
TOKYO, July 20 (Reuters) - Japan’s JVC 6792.T has agreed to form a business and capital alliance with Kenwood Corp. 6765.T to boost its financial strength and keep up with fierce price competition, sources close to the matter said on Friday, sending JVC shares higher.
Under the pact, struggling consumer electronics maker JVC, owned 52 percent by Matsushita Electric Industrial Co. Ltd. (6752.T), would raise 30 billion yen ($250 million) by issuing 20 billion yen worth of new shares to Kenwood and 10 billion yen worth of new shares to Sparx Asset Management 8739.Q.
The deal would lower Panasonic maker Matsushita’s stake in JVC to about 39 percent, taking the loss-making company off its consolidated accounts.
After the transaction, Kenwood would hold a 10 percent stake in JVC, whose official name is Victor Co. of Japan Ltd., and Sparx would own a 5 percent stake.
JVC and Kenwood plan joint research and development to improve efficiency, the sources said.
Shares in JVC were up 2.7 percent at 375 yen by late afternoon, while Matsushita gained 1.3 percent to 2,380 yen and Kenwood shares were unchanged at 183 yen.
“This is pretty much in line with what people have been talking about. But now uncertainty is gone and that is a plus (for JVC shares),” said Yoshihisa Okamoto, senior vice president at Fuji Investment Management.
JVC and Kenwood have been in negotiations with an eye to integrating their operations under a holding company, but the two firms are set to continue talks on the matter since there is still resistance within JVC against the plan, the sources said.
Matsushita, the world’s largest consumer electronics maker, has been trying to reduce its JVC stake, worth about 50 billion yen, because its persistent losses have been weighing on group-based earnings performance.
The Osaka-based company chose U.S. private equity firm Texas Pacific Group [TPG.UL] as its preferred bidder for its JVC stake back in March.
But the talks fell through after banks had resisted funding the acquisition because they were unconvinced that TPG could turn around a company heading for its fourth straight annual loss.
Although JVC enjoys brisk demand for hard disk drive-equipped camcorders, its rear-projection television sales have been hit by sharp falls in plasma TV prices.
Yokohama-based JVC expects a net loss of 10.5 billion yen for the current business year to March 2008, after posting a 7.9 billion yen loss a year earlier.