French electronics maker Thomson SA and China’s TCL International Holdings said on Monday they would combine their TV and DVD businesses to create the world’s biggest television maker.
THE VENTURE, which is expected to become fully owned by the Chinese company within 18 months, could help TCL circumvent anti-dumping rules in the U.S. and European markets as it pursues its ambition to become a global brand. At the same time, Thomson gains access to China’s cheap manufacturing base, analysts said.
“This is a big deal — the marriage between the biggest TV seller in China and the United States,” said Zhaohong Li, an analyst at Daiwa Securities.
The joint venture, two-thirds owned by fast-growing TCL and one-third by Thomson, would crank out 18 million TVs a year and have annual sales of more than three billion euros ($3.51 billion). Thomson said it would shift about 1.25 billion euros in annual revenues to the venture but added the deal would not entail new job losses or charges.
Thomson shares rose as much as six percent in Paris to 19.20 euros after gaining 14 percent last week on expectations that it would strike a deal with TCL. Trading in TCL shares, which gained 29 percent last week, was suspended in Hong Kong.
The deal creates a beefed-up, low-cost rival to other big TV makers such as Japan’s Sony Corp, LG Electronics Ltd of South Korea, and Dutch giant Philips Electronics NV, as well as Chinese foes Changhong, Skyworth Digital Holdings Ltd and Shenzhen Konka Group Co Ltd.
THOMSON TO TAKE TCL STAKE
TCL plans to take over the venture within 18 months, Thomson said. That deal would involve a share swap that would make Thomson the second-largest shareholder of the Chinese company, which currently has a market value of $1 billion, behind parent company TCL Corp.
Thomson chief executive Charles Dehelly said in Hong Kong the size of its stake in TCL Corp would depend on market conditions and the valuation of the joint venture at the time of swap.
The venture, called TCL-Thomson Electronics, will have assets of more than 450 million euros. The transactions marks one of the most aggressive overseas moves to date by a Chinese company.
TCL, the Hong Kong-listed arm of China’s second-largest TV and cellphone maker, TCL Corp, is the most popular brand in mainland China. It sold about 3.72 million TVs in the country out of its total TV sales of 5.43 million in the first seven months of the year, government statistics show.
“TCL can leverage on Thomson’s brand name to price its products higher, thus improving its profit margins, while Thomson can enjoy cheaper production costs when manufacturing in China,” said Alfred Chan, chief dealer at Cheer Pearl Investment Ltd.
Chinese appliance makers, choking on overcapacity and intense competition at home, have been looking to markets abroad as they enhance the quality of their products.
GLOBAL BRAND
Thomson, which makes sets under the RCA name popular in the United States, said the merger would have a positive impact on its margins and profit, and said it would transfer 9,000 Thomson workers to the venture.
Thomson said it would hold key management spots at the new company.
The group will use the TCL brand in Asia and emerging markets, while keeping Thomson as the key brand in Europe and RCA in North America.
UBS estimated that if Thomson set up the TV joint venture, the group’s estimated 2005 EBIT margin could exceed 11 percent compared to the 6.4 percent average achieved since Thomson’s IPO in the fourth quarter of 1999.
The Thomson tie-up would be TCL’s largest overseas foray to date, underscoring its ambition to become a global brand.
Merrill Lynch said that in the medium term, the potential joint venture could create economies of scale around an established brand. This would potentially give TCL a competitive edge over other TV companies in China.
“This is a good direction to take in terms of taking their (TCL’s) own brand on widely used appliances in the world market,” Daiwa’s Li said.
He said the tie-up might help TCL circumvent anti-dumping issues that the group faces in the U.S. and European markets.
Last year, TCL purchased insolvent German TV maker Schneider Electronics AG to avoid dumping allegations in Europe.
After upgrading Schneider’s product line, TCL began accepting business at the company in September and had signed 30 million euros in orders as at the end of October.
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