Matsushita makes up its mind, spins off JVC to absorb Kenwood

With an increasing number of Chinese and South Korean companies operating in the Japanese consumer market, electronics companies Kenwood and Victor of Japan, known as JVC, plan to merge into a new company.

The new entity will be called JVC Kenwood Holdings, though there's two schools of thought regarding which brand will prevail once the deal is sealed. The move confirms rumors leaked by the Nikkei news agency as early as July 2007.

JVC is known as a manufacturer of camcorders and other home electronics devices, while Kenwood has remained a car audio and electronics company. JVC made Japan's first television set and helped promote the VHS concept, but said it would stop manufacturing flat-panel televisions for the Japanese market.

The two companies have been in negotiations to merge since last July, and remained quiet until they were able to iron out more details. By the end of fiscal year March 2011, the two companies aim for $8 billion in sales and a $376 operating profit, which is minute compared to Matsushita's $87 billion in sales and $5 billion operating profit.

Matsushita has a 52% stake in JVC, and has long wondered what it should do with the brand. Although Matsushita saw significant increases in its stock value in 2005 and 2006, its further growth was limited by JVC and its continued struggles to remain afloat. Matsushita considered selling the company on numerous occasions, but executives did not want to give an edge to competitors.

Japan Victor shareholders will receive two JVC Kenwood Holdings for each individual share owned, and Kenwood shareholders will swap one-to-one.

Current Kenwood Chairman Haruo Kawahara will become the company's chairman while JVC President Kunihiko Saota will serve as JVC Kenwood Holdings' president. It is unknown what specific market the new company will target, but it may eventually sell high-end products for car audio enthusiasts and select consumer electronics while avoiding low-price, low-margin consumer markets.

The deal should be completed next month, and JVC Kenwood Holdings will officially launch on October 1. If combined today, both companies would have a $92 million operating profit over the past fiscal year.