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Old May 13th, 2008, 05:29 PM   #1
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Kenwood and JVC to form "JVC Kenwood Holdings Inc"


Kenwood Corp and Victor Company of Japan Ltd (JVC) announced that their boards of directors decided to form "JVC Kenwood Holdings Inc" and merge their managements by transferring their shares Oct 1, 2008.

The announcement was made at a press conference May 12, 2008. The merger agreement will become official after the approval at general shareholders' meetings of both companies. Shareholders of JVC will receive two shares of the new company for each JVC share while one share in the new firm will be allocated for each Kenwood share.

After the merger, Kenwood Chairman Haruo Kawahara will become the new company's CEO and chairman, while JVC President Kunihiko Sato will assume its presidency.

"Extraordinary" new business will be the fifth pillar

The two companies will "streamline existing businesses into car electronics, home and mobile electronics, PROFESSIONAL SYSTEMS and entertainment segments," Kawahara said. In addition, "We will create an 'extraordinary' new business that does not fit in existing boundaries and make it our fifth core business by fusing image, audio and wireless technologies at a high level," he said. (JAPAN INC HAS BEEN VERY BUSY DEVELOPING WIRELESS HD CHIPS.)

The companies said they will merge their management in accordance with their vision to "give form to extraordinary efforts."

Kawahara expected the management integration will generate synergy of 30 billion (US$289 million) sales and 10 billion cost reduction. Through these effects, the new company aims at combined operating income of 39 billion in the fiscal year through March 2011 (fiscal 2010). This figure represents roughly four times the combined operating income of 9.6 billion in the fiscal year ended March 2008 (fiscal 2007).

Combined sales are expected to virtually remain flat from the 823.7 billion in fiscal 2007 to 830 billion in fiscal 2010, but profit margin is anticipated to jump up from 1.2 to 4.7%.

Although they did not reveal details including content and schedule of the new business, which will become the new company's fifth core business, JVC's Sato explained, "We are currently exploring the profitability of two or three potential ideas. The employees concerned are all very excited. We will aim to initially increase the size of the business to 30 to 50 billion."

Both Kenwood and JVC will continue as business companies even after the management integration. Current president Kazuo Shiohata will continue to serve as president at Kenwood.

Meanwhile, Hidetoshi Yoshida, current director, will become the new president at JVC. Yoshida, a 51-year-old officer born in 1956, "has many years of experience overseas, as well as in Japan. Considering youth is essential to overcome upcoming hurdles, we've selected our youngest ever president," Sato said.

The two companies established J&K Technologies Corp, which is dedicated to joint development, on Oct 1, 2007. With about 130 engineers, the joint company has been developing standard technologies for both Kenwood and JVC, focusing on their common businesses in the car electronics and audio areas.

When the new holding company is established Oct 1, 2008, "We intend to generate synergy in production and procurement as well by placing our production subsidiaries in the car electronics and audio areas under J&K Technologies," Kawahara said.

"The first effects of the merger are likely to be seen in the car electronics area," JVC's Sato said. J&K Technologies, however, will only develop technologies and manufacture products. Each business company will be responsible for product planning, marketing and sales.

"JVC and Kenwood have each built up their brands in the market over many years," Kawahara said. "We will start our integration from procurement, development and production, where the results of the merger can easily be seen."

Some people raised questions concerning the reorganization of the industry, which is Kawahara's pet theory, during the Q&A session, but he only replied, "First of all, we hope that we will exhibit a successful example of two AV-only manufacturers reviving themselves through a merger."
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