(Yicai) April 1 -- Shares of TCL Electronics Holdings rose after the Chinese consumer electronics giant said it has finalized a JPY75.4 billion (USD475 million) deal to take a majority stake in a new joint venture that will control Sony’s home entertainment business.

TCL Electronics [HKG: 1070] closed up 8.5 percent at HKD13.84 (USD1.77) per share in Hong Kong today, after earlier jumping by as much as 13 percent.

Under the deal, Sony will set up a new company to take over its home entertainment business, with TCL subscribing to 51 percent of the equity, the pair said in separate announcements yesterday. Sony will own 49 percent. They first announced their intention to team up in January, but had yet to finalize the details.

Sony’s home entertainment business spans product development, design, manufacturing, sales, logistics, and customer service for products such as Bravia’s consumer televisions and business-to-business flat panel displays, B2B light-emitting diode displays, projectors, and home audio gear.

Game Changer

“This is one of the few mergers and acquisitions between leading global TV brands in the past two decades,” Zita Zhang, deputy general manager of large-size display business research at consultants Sigmaintell, told Yicai. “It’ll have a comprehensive and far-reaching impact on the entire market.”

Once the JV is operational next year, TCL and Sony’s combined global TV market share could come close to or even surpass that of market leader Samsung, Zhang said. This is the first time that a Chinese TV maker has seriously challenged for the global top spot, she added.

Hong Kong-headquartered TCL shipped 30.7 million TVs worldwide last year, ranking second to South Korea’s Samsung at 35.3 million units, per Sigmaintell's data. Tokyo-based Sony shipped 4.1 million.

Within two years of the deal closing, TCL’s shipments are expected to challenge Samsung’s position as the world’s leading TV manufacturer, said Rong Chaoping, deputy research director at AVC Revo.

TCL will elevate the market positioning of its products to the ultra-premium level, leveraging the Sony and Bravia brands, and raise its share in the global high-end TV segment by tapping into Sony’s existing sales network, Zhang pointed out.

“Together, we aim to drive the global development and premiumization of the new company, delivering superior products and services to consumers worldwide,” said TCL Chairperson Du Juan. 

Sony President and Chief Executive Kenji Tanaka said the pair will “strive to provide new customer value to a global audience and achieve further growth in the home entertainment field.”

Other Units, Exit Option

As part of the deal, TCL will also acquire all of Sony Emcs Malaysia, which manufactures home entertainment products, the pair noted, adding that they will continue talks on the transfer of all or part of the equity in Shanghai Suoguang Visual Products, another unit that makes the products.

The deal also stipulates that Sony has the option to sell all or part of its stake in the new JV at an agreed price on an agreed date to safeguard the rights and interests of minority shareholders.

Based on the equity value of the above two businesses and the ownership ratios, TCL is expected to pay Sony JPY75.4 billion (USD475 million), but the final amount will be determined after further adjustments for certain net debt and working capital at the time of closing.

The transaction, which is subject to regulatory approval among other conditions, is expected to be completed by April next year, when the JV is scheduled to commence operations.

Sony will sign licensing agreements with the new JV for patents, proprietary technologies, and brand rights, the two firms said. The JV will sell products under the globally recognized Sony and Bravia names, aiming to create new customer value.

The partners also said the JV will strive to develop innovative products that meet the expectations of consumers worldwide and achieve further business growth through outstanding operational excellence.

Editors: Tang Shihua, Futura Costaglione