PHILIPS AND LG JOIN
FORCES IN DISPLAY COMPONENTS ACTIVITIES
- Merger of Philips Display Components with LG’s display
components activities makes the combined entity world’s no.
1 in display technology
Royal Philips Electronics of the Netherlands (AEX: PHI, NYSE: PHG), and LG Electronics (LG - KS 02610) of South Korea, announced today the signing of a Letter of Intent through which the companies will merge their respective cathode ray tube (CRT) businesses into a new joint venture company. The transaction is expected to close in the first half of 2001 and is subject to customary regulatory approvals. Upon closure of the transaction, LG will receive an amount of $1.1 billion from the new company, to close the difference in valuation.
World’s No.1 in CRT Technology
The 50-50 joint venture in display technology concerns all CRT activities, and key components. Both companies have agreed to include their glass activities in the final agreement, and also aim to include their Plasma technology (PDP) activities, following valuations. With expected annual sales of nearly US$ 6 billion and approximately 36,000 employees, the new company will ensure a global leadership position in the CRT market.
Philips is already a leading global supplier of CRTs (No.1 in television tubes, and No.5 in computer monitor tubes), with particular strengths and significant market shares in Europe, China, and the Americas. It employs approximately 24,000 people and has 11 CRT manufacturing sites throughout Asia, Europe and the Americas. Philips Components’ CRT business posted revenues of US$ 3.0 billion in the year 1999, and EBIT (Earnings Before Interest and Tax) of US$ 157 million.
LG is also a leading supplier of CRTs, both in television and monitor tubes, where it holds a global No.3 position. Already producing the highest yields in the industry, LG has 5 CRT manufacturing sites, mainly in Asia, and employs approximately 12,000 people. LG’s CRT business had revenues of US$ 2.2 billion in 1999, and EBIT of US$ 357 million.
Complementary Strengths and Synergy Potential
The merged entity is projected to benefit from the highly complementary strengths
of the two companies:
- Philips’ leadership in television tubes, and LG’s leadership in monitor tubes;
- LG’s geographical leadership in Asia, and Philips’strengths in Europe, China, and the Americas;
- LG’s industrial and manufacturing expertise and Philips’ global marketing and technological innovation.
Further benefits are expected in the areas of purchasing and research & development.
Under the terms of the agreement, LG and Philips will share equal control of the joint venture. The new company will be legally established in the Netherlands, with operational headquarters in Hong Kong. Philippe Combes, currently CEO of Philips Display Components will lead the joint venture.
LG.Philips LCD Co., the existing 50-50 joint venture between Philips and LG in Active Matrix Liquid Crystal Display (AMLCD), remains unaffected by the announced transaction.
Transaction Considerations
LG and Philips will sign a Definitive Agreement following further confirmatory due diligence, and the receipt of necessary regulatory approvals. The transaction is expected to close in the first half of 2001.
In view of the existing relationship with LG, and the intended new joint venture, Philips is considering to invest in a redeemable preference share issue by LG, subject to terms and conditions.
Commenting on the agreement, Gerard Kleisterlee, Executive Vice-President and Chief Operating Officer of Royal Philips Electronics, said: “Together we can provide more compelling solutions for our customers, more value for the parent companies, their shareholders, and a challenging environment for our employees. The deal is consistent with the strategy of Philips, focusing on high-growth digital markets, while co-operating on the level of enabling technologies, and will be accretive to our earnings as of day one. The joint venture puts us in a clear cost leadership position in a mature market. Based on the relationship we have developed with LG through the LG.Philips LCD partnership, we have full confidence in this new joint venture. Our combined technological strength, together with Philips’ market leadership and LG’s manufacturing expertise, is an extremely powerful proposition.”
John Koo, Vice Chairman and CEO of LG Electronics, said: “The decision for the alliance was made in order to become the Global leader amidst fierce competition”. Mr. Koo added, “LG will do its best to become a company whose name is synonymous with customer satisfaction world-wide, by fully leveraging the synergy created by partnership-based management. Besides extending our fruitful co-operation with Philips, the deal will provide us with significant additional capital for investment in our operations."
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