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ENGLEWOOD CLIFFS, N.J. - LG Electronics has decided that its efforts to build its image in the U.S. will go a lot smoother if it associates itself with some established American

That's one of the reasons behind its decision to buy majority interest in Zenith Electronics. Now the company says it wants to enter ventures with other U.S. companies.

The majority acquisition of Zenith occurred last November: LGE acquired a controlling interest in Zenith in a deal valued at more than $350 million. LGE, a 20-year manufacturing partner to Zenith, acquired at $10 per share 16.5 million newly issued shares of Zenith common stock and more than 18 million shares from Zenith shareholders in a friendly tender offer.

Along with the 1.45 million shares of Zenith common stock LGE already owned, the transaction, which was reported last July and approved by Zenith shareholders in early November, gives LGE a 57.7 percent stake in Zenith.

The transaction is viewed by many as the starting point to a new LGE. Industry observers say the arrangement promises to build better consumer awareness of LGE.

And of course, Zenith expects to benefit by the transaction, too, with support on a variety of fronts including DVD and investment in the production of large-screen TV picture tubes.

The Korean-owned LGE, formerly known as Goldstar U.S.A. Inc., readily admits it needs to build a stronger presence both in North America and throughout the world.

"We admit we cannot conquer the world by ourselves," said Nam Woo, president of LG Electronics U.S.A Inc. "We see ourselves moving forward by cooperating not just with Zenith, but a variety of U.S. companies."

Woo told HFN his company has a special project percolating right now with a major U.S. corporation, which he declined to name.

LGE, he added, has come to understand globalization is its key to survival. "But at the same time no one company win have the total solution to an ever-changing environment, he added. "So alliance partners become critical. Networking becomes critical."

While Zenith and LGE will continue to function as separate companies in many ways, it's clear after talking to officials at both companies the deal plays strongly to LGE's desire to redefine itself. For one thing, the company now has direct access to digital high-definition television since Zenith is a major player in the so-called Granda Alliance of manufacturers currently working on an HDTV standard. The first HDTV sets based on this standard are expected to arrive in the U.S. in the fall of 1997.

Phil Petescia, director of brand management/home electronics for LG Electronics U.S.A., readily admits his company's initial involvement with Zenith - dating back several years when it acquired 5 percent of the company - was specifically to get involved with HDTV.

Petescia said the recent majority acquisition also will allow LGE to stake out a position in another developing technical area, DVD. DVD will allow the playback of feature-length motion pictures or the storage of copious amounts of computer data on a single 5-inch compact disc.

Zenith is part of a consortium of manufacturers pledged to a single, unified DVD standard. Many industry pundits expect DVD to be the hottest consumer electronics property since the VCR or, more recently, the Digital Satellite System. "We full expect to be in the forefront of DVD thanks to Zenith," said Petescia.

Without question, LGE's biggest challenge for the future will be to upgrade its image, said Ray Navarrete, vice president and divisional merchadise manager for Tops Appliance City. "Today their image does not lend itself to the technologies they will be associated with in the future, high-tech concepts like HDTV and DVD, " he said. " The acquisition of Zenith was certainly a strategic move, although it's too soon to tell how good of a move it was. "

LGE specialists are now hard at work at Zenith headquarters to help with improvements in engineering, procurement and manufacturing. "We have had long involvement with Zenith; as early as 1992, we began dispatching engineers to Zenith to work on projects like HDTV," said Woo. "They are not there to dictate, but to help. Marketing and sales will stay independent, and we cannot ignore the interest of Zenith's minority shareholders."

At the same time, Woo added, LGE and Zenith expect to accomplish much together, not the least of which is to make Zenith a stronger player in larger screen sizes. "By the first quarter of 1997, we want Zenith to be the strongest player in larger picture tubes and screen sizes" he said. In addition, we are a big computer monitor maker and will assist Zenith in becoming part of this profitable business."

The company already reported it will expand its production capacity for color TV picture tubes, install new automated production processes and start a new production line for projection TV picture tubes. The company also said it will produce high-resolution color picture tubes for computer monitors, with LGE as one of the major customers.

"This will be the first of many investments to significantly strengthen our place in the marketplace by using the strengths made available to us by LGE coupled with our experience and technology base," said Jerry McCarthy, president of Zenith Sales Co., a division of Zenith Electronics.

"We've said all along the marriage of Zenith and LGE would put both companies in a position to take advantage of synergies that could improve our efficiency and cost structure, well as aid us in improving our overall competitive position in the U.S. marketplace," he added. "There are cross-functional teams from both companies in the process of analyzing many aspects of our business with the goal of rationalizing the best approach to further capitalize on and strengthen the Zenith brand name in the U.S."

Thanks to LGE, Zenith now can make investments and take on a whole host of new strategic initiatives, from getting into the large-screen TV business to expanding its cable set-top business, according to Al Moschner, president and chief executive of Zenith Electronics.
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Title Annotation:includes related article on niche products from LG Electronics USA Inc.; LG Electronics and Zenith Electronics Corp.
Author:Veilleux, C. Thomas
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Jan 29, 1996
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