Philips Electronics and LG Electronics are to merge their CRT businesses into a new joint venture company.
The move heralds the second joint venture between the two companies. LG Philips LCD Company, the existing 50-50 joint venture between Philips and LG in active matrix LCD, is unaffected by this transaction.
The companies claim the CRT joint venture - also a 50/50 basis - will be the world's number one in terms of technology. It will have annual sales of more than $6bn and will employ 36 000 people.
Savings of between $200m and $300m are expected annually within two years, according to Gerard Kleisterlee, Philips' executive vice-president and chief operating officer.
The venture will borrow $1.1bn, of which around half will come from Philips, in order to pay LG for the difference in the values of assets being brought into the venture: LG has an earnings before interest and tax margin in three figures, while Philips' is in "low to mid-single digits".
The terms under which Philips could participate in a preferred share issue by LG are still being negotiated. But if it were to participate for the maximum $500m, it would obtain a 5 to 8% stake in LG, according to Jan Hommen, Philips' chief financial officer.
The venture concerns all CRT activities and key components. Both companies will include their glass activities and also aim to include their plasma display technologies, following valuations.
Philips is already a leading supplier of CRTs, being the number one position in TV tubes, and number five in computer monitors, while LG holds the monitor number three position.
The companies are looking to benefit from LG's geographical leadership in Asia and Philips' strengths in Europe, China and the Americas.
Philippe Combes, currently CEO of Philips Display Components, will lead the joint venture.
The transaction is expected to close in the first half of 2001, subject to regulatory approvals.