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MAY 2008 W3 ALERT JVC/KENWOOD: MATCH MADE IN HEAVEN...OR HELL?
Investors in Japan React Negatively...Shares Drop Sharply <Nikkei-TOKYO><May 14, 2008>As more details emerge about the merger of Victor Co. of Japan (JVC) and Kenwood Corp, investors in Japan reacted negatively with the stocks of each company closing down Tuesday. JVC shares closed at ¥249 down 13%, the second largest share decline on the TSE’s first section according to a report in the Nikkei. Kenwood stock declined ¥7 to close at ¥126.
At press time Wednesday, both stocks were continuing their decline with JVC shares down another ¥10 to ¥239 and Kenwood shares down an additional ¥4 to ¥122.
This past Monday in Japan, the two companies released details of their merger plan including the creation of a holding company called JVC Kenwood Holdings, Inc. The plan, pending shareholder approval, is for the holding company to complete its merger and listing on the stock exchange on October 1, 2008.
 With a somewhat convoluted current structure [see graphic at left from the Nikkei], the goal is to simplify its post-merger structure. The restructuring is to be accomplished via a “stock swap” arrangement in which JVC stockholders will get two shares stock in the holding company for each share of JVC stock that they currently hold.
Conversely, Kenwood shareholders will receive one share in the new holding company for each of their current Kenwood shares.
Kenwood Chairman Haruo Kawahara is expected to be appointed chairman of JVC Kenwood Holdings and JVC President Kunihiko Sato is expected to be appointed the holding company’s President.
The company has announced that it will focus on four main product groups: 1) automotive electronics; 2) digital consumer electronics; 3) commercial-use products; and 4) music & other digital content.
The company says it will achieve sales of ¥830 billion in 2010 (about $8 billion at current exchange rate). Current group sales are ¥823.7 billion in fiscal 2007. The company has also forecast a profit of ¥39 billion which may be somewhat rosy as it is roughly four times their current profit level.
While only time will tell if the company can meet these forecasts, one thing is sure: investors don’t like what they see so far. Some analysts suggest that the JVC shares are overvalued in the way this deal is structured. Image courtesy of the Nikkei |
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