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LG's new Zenith.

NEW York--Retailers and analysts hailed last week's proposed acquisition of Zenith Electronics Corp. by South Korea's LG Group Inc., saying cash-starved Zenith will now have the funds to accelerate large-screen TV production and expand globally while providing LG with greater access to the U.S. market.

Zenith, the last U.S.-owned TV maker, ranks third in U.S. television-set sales and has been developing high-definition television (HDTV), a technology that many industry pundits think will become the U.S. standard. But the company hasn't produced a full-year profit since 1984. It has been battered by price cutting by European and Asian competitors, struggled to cut its costs by slashing payroll, moved more of its production to Mexico and continued to pour money into HDTV development.

LG Electronics, with 1994 sales of $7 billion, markets the Goldstar brand. The deal gives it greater presence in the U.S. and, because of Zenith's R&D with high-definition TV, more technological panty with Japanese competitors, who are also working on a version of HDTV.

"Now it's the Koreans versus the Japanese," said David Goldstein, president of Channel Marketing Corp. in Dallas. "There really isn't a big driving American influence now, because that's what Zenith was."

As proposed, the deal has LG paying $350 million for 16.5 million shares, or 57.7 percent, of Zenith common stock. The South Korean company had owned 1.45, or about 4 percent, previously. LG Electronics Inc. (LGE), which produces LG Group's electronic products, will work directly with Zenith.

Clark Johnson, vice president of the retail tracking service NPD Group Inc., said, "I think they are getting a brand that has a tremendous impact in the marketplace and at the very least it will allow Zenith to focus its efforts on the marketplace since they won't have to worry about finances."

For Zenith, the acquisition could pay more immediate dividends. "The major change for us and for our dealers is that Zenith will be in a position where we, like our competitors, will have resource accessibility that wasn't available to us before. We'll be able to run the race with the same amount of technology and financing that our competitors have," said Albin F. Moschner, Zenith's president and chief operating officer.

"The opportunity that we have with the additional funds will get us into large screen, 31-inch and above, as well as wide aspect ratio which would be utilized in the digital television environment. We did not do this for short-term loss coverage. This is part of a long-term strategy as this enables us to take on global communication."

Steve Child, vice president of merchandising for the R.C. Willey chain, said LGE's financial backing will give Zenith some new opportunities. The Salt Lake City-based chain carries Zenith as its leader brand in TVs. "It will be a positive thing for Zenith retailers. It will give Zenith more cash and the ability to do more promotionally," he said.

"I think it was the only financial deal Zenith could pull off," said Walter Khao, vice president of technology at Link Resources, a New York-based marketing and consulting research firm. He called LGE Zenith's "white knight.

"Zenith was looking for someone with deep pockets," he added. "The TV business is a global business and global competitors like Thomson, Philips, Sony and Matsushita look at the whole world as their marketplace. Zenith was at a severe disadvantage by focusing solely on the U.S. market and suffering the ups and downs of only one market."

Zenith and LGE will continue to operate as separate entities, each with its own sales, marketing and manufacturing forces, said Nam K. Woo, president of LGE U.S.A. Woo said that serious talks concerning the acquisition only recently took place. The final decision hinged on a 20-year association, during which the companies had an OEM relationship.

"Zenith and LGE technology is very complementary. What we have they do not and what they have we do not. This [deal] provides a new dimension to international business cooperation," Woo said.

Moschner said Zenith products will not compete with LGE's Goldstar brand in the retail market. "There is very little overlap. That allows us to grow both brands without hurting the other," be said.

Gerald McCarthy, Zenith's executive vice president, sales and marketing, added that under new ownership Zenith will continue its current distribution strategy of selling direct to retailers. Zenith changed from a two-step distribution practice July 1 and eliminated distributors.

"We're focusing on national chains and stores where customers are going to be given demonstrations of product features and benefits by trained sales personnel who help the customer make purchasing decisions," he said.

Retailers said they hope LGE will be able to help Zenith correct some of its past distribution problems, particularly concerning big-screen TVs. Dealers said there have been problems with delivery because the factory supplying Zenith with big-screen Tvs from could not keep up with demand.

Analysts said a financially healthy Zenith could potentially lead to an increase in competition at the top of the TV market, particularly with Netherlands-owned Philips Consumer Electronics Co. and French- owned Thomson Consumer Electronics.

Thomson is the leading TV manufacturer in the U.S. Its RCA brand has a 16.4 percent retail market share, and its GE brand has 5.8 percent. Thomson spokesman Frank McMann said it will take time for Zenith's sales to have an impact on Thomson because it takes time to get into new business. "Zenith is a competitor now, and they should be a strong competitor down the road," he said.

Later this week Zenith will introduce new television products and share promotional plans at a press conference at its Glenview, Ill. headquarters. While Moschner couldn't be specific about marketing plans he said, "LGE would like to have us support the brand more aggressively than in the past, and I'm sure that means more advertising." --Additional reporting by C. Thomas Veilleux
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Title Annotation:LG Group Inc. plans to buy Zenith Electronics Corp.
Author:Olenick, Doug; Bloomfield, Judy
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Jul 24, 1995
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