Victor Company of Japan (JVC) and Kenwood took the first steps in what is expected to become a full merger between the two companies when they formally revealed plans to join their mobile, home and portable audio businesses in October.
Executives for the U.S. operations of the companies confirmed the plan, which focuses on joining audio products businesses in Asia in a move to cut costs and build a more dominant company to compete with emerging rivals.
A JVC Mobile Co. of America spokesman said, "A big part of this is there's so much fierce competition coming out of China and Korea, and the companies need to lower their costs."
The resulting car audio business would become the second largest after Pioneer, according to a JVC spokesperson. A Kenwood spokesman said the combined car electronics business would be worth $1.4 billion.
How the joined businesses will impact U.S. sales operations was still unclear to U.S. executives.
Keith Lehmann, Kenwood consumer electronics senior VP, told TWICE, "We're not speculating on any effect this development may have on the business structure or distribution in the U.S."
In the meantime, the companies will continue to contemplate a complete business merger in the future.
To join the audio businesses, JVC said it would issue $288.7 million in new shares, selling $164.9 million worth to Kenwood and $123.7 million to Sparx Group, Kenwood's top shareholder.
The new shares will reduce Matsushita Electric Industrial's stake in JVC to 37 percent from 52 percent, allowing it to stop treating JVC as a consolidated subsidiary and handle it as an equity-method affiliate.
The announcement comes after reports of on-again, off-again bids by outside suitors for a portion of Matsushita's stake in the electronics company.
Kenwood was an early bidder for Matsushita's JVC stake and then dropped out of the running before U.S. equity firm TPG reportedly placed the high bid for the stake.
But Matsushita, Kenwood and JVC continued to work on alternative solutions that were more attractive to all three companies.
News of the joint venture plan followed net losses by JVC for three fiscal years. On the heels of the Kenwood report, JVC reported that its group net loss deepened to $106.8 million in the April-June quarter due to continued price compression in consumer electronics products. That compared to a group net loss of $28 million a year earlier. Group sales declined 9.7 percent to $1.3 billion from $1.45 billion.
Matsushita's possible sale or reduction of its holdings in JVC has been speculated on for years, but took on a higher profile as JVC posted losses in the past two years and Matsushita went under a management change.