Shares of electronics maker Kenwood jumped as much as 10% on Monday on news it has resumed talks with Matsushita Electric Industrial to buy a stake in JVC after a deal with private equity firm Texas Pacific Group fell through.
Shares of JVC, a loss-making electronics firm whose official name is Victor Co. of Japan, fell as the likely deal would involve it issuing new shares to Kenwood, diluting the value of existing JVC stock.
Kenwood, a maker of stereos, car navigation systems and wireless radio equipment, is in talks to buy 20 billion yen ($165 million) worth of new shares from JVC and then merge with JVC under a holding company, sources familiar with the matter told Reuters on Saturday.
Matsushita would then sell part of its 52.4% stake in JVC to the holding company. Matsushita is aiming to get loss-making JVC off its consolidated accounts, but would likely hold on to some of its shares, the sources said. The Nikkei business daily and other Japanese media reported similar details.
Shares of Kenwood were up 2.5% in the morning session after surging as much as 10%. Shares in JVC tumbled 11.5% to 437 yen, while Matsushita's stock rose 2.2%. Tokyo's Nikkei 225 Average was higher.
Kenwood spokesman Takaaki Nose said on Saturday it still sees a merger with JVC as an attractive option to survive tough competition in the electronics industry, but he would not comment on whether it was once again talking with JVC.
Kenwood was originally one of the companies interested in JVC before the bidding had been narrowed down to Texas Pacific.
JVC, Kenwood and Matsushita all issued statements saying nothing had been decided.
Kenwood has already secured a 70 billion yen credit line from its banks for the deal. Sparx Asset Management, an investment firm that holds Kenwood shares, may also participate in the deal, according to sources.
Sources familiar with the matter had told Reuters earlier last week that TPG's bid for JVC was struggling to win backing from lenders, putting the roughly $550 million deal in jeopardy and possibly opening the door for other suitors.
Banks had resisted funding the acquisition of JVC because they were unconvinced that Texas Pacific could turn around a company heading for its fourth straight annual loss.
Matsushita also turned sour on the deal with Texas Pacific because the American firm lowered its offer price after JVC's earnings announcement in April, when its operating loss turned out to be larger than previously forecast, sources told Reuters.
Yokohama-based JVC said on May 30 it expects a net loss of 10.5 billion yen for the business year to March 2008, hit by 16 billion yen in restructuring costs.