GRUNDIG SEEKING NEW SUITOR FOR TAKEOVER AS SAMPO SEEMS TO BOW OUT

Move seemed to indicate Sampo’s takeover bid was off table, although it wasn’t clear who had jilted who. Request for clarification wasn’t answered by our deadline. In statement announcing Beko talks, Grundig owner and Chmn. Anton Kathrein said “the key negotiations with the Taiwanese company Sampo are proceeding very slowly. The talks have revealed that our plans for particular themes and deadlines are simply too far apart. Especially the conflicting views on finding a workable schedule have prompted us to start negotiations with Beko in the hope of finding a quicker solution.”

Grundig said “solution” with Beko would include clarification of future of Grundig’s TV production in Vienna. Nuremberg-based company shuttered its German TV manufacturing operations in Nov. 2001 and moved them to Vienna, but sold plant in Jan. to Austrian entrepreneur Mirko Kovats, whose company was to produce sets for Grundig over next 2-3 years. Sampo had made no secret of coveting Grundig’s manufacturing base in Europe because of 14% levy there on TVs imported from China. Agreement for Sampo takeover of Grundig was announced Jan. 8, and Sampo even briefly displayed Grundig logo on its Website. Statements by Sampo CEO Ho Heng-Chung indicated acquisition was done deal, but source told us at time it hadn’t been ratified.

Beko isn’t unknown entity to Grundig. Companies signed contract in Nov. 2001 for Beko to produce 500,000 TVs up to 20” annually for Grundig. In recent weeks, Grundig agreed to handle service and warranty issues for all Beko-made CE products in Europe. Beko was founded in 1966 and says it’s Europe’s 4th- largest TV manufacturers. Company markets wide range of TVs and CE products under own brand, in addition to OEM work for other brands. Beko said it produced more than 4 million TVs last year, doubling 2001’s output. Sales in Europe account for 85% of TV production. Beko also manufacturers satellite receivers, set-top boxes and PCs at its production facilities in Istanbul. It also sells and services audio equipment, VCRs, DVD players and other CE products. It’s listed on Istanbul Stock Exchange and majority owner is Koc, large Turkish conglomerate.

“As a potential investor, Beko has been one of the front- runners for months. The company is very interested in strengthening their presence in the German and European markets,” said Kathrein, who owns 89% of Grundig stock. “The discussions have shown that a bundle of synergies exist between both partners, particularly in the field of consumer electronics. Thus we were able to address the core issues very quickly -- it was possible to forgo many preliminary questions, since both sides knew each other well from previous negotiations.” Kathrein said that “after the negotiations with Sampo didn’t lead to desired results” Beko expressed renewed interest in acquiring Grundig.

Details of Sampo’s planned takeover began leaking in last week in Jan., when Grundig was shutting down U.K. subsidiary, it’s largest in Europe. Although company at same time was rolling out new high-end lines in LCD-TV, procurement of components needed for entry to high-margin high-end businesses had been problem for struggling company, one that prospective owner Sampo said it was ready to address by supplying Asian- sourced plasma panels and other parts.

Taiwanese CE company said it planned to expand Grundig’s market share in Europe while also introducing brand to Asian markets, including in China and Japan. Acquisition of venerable European CE brand was to have been 2nd in recent months: In fall, TCL, China’s largest TV maker, took over Germany’s Schneider and Dual brands in bid to gain foothold in European market along with manufacturing bases there (CED Sept 23 p1). In each case, purchase price and other financial terms weren’t disclosed.

Among its plans for Grundig, Sampo said current management would remain in place and in Germany, although purchasing department would move to Taiwan. Grundig’s top brass welcomed deal at time, and Kathrein said new financial backing would enable it to reposition itself with new products and marketing. Grundig, established in 1945 as Germany’s first postwar radio manufacturer, also was pioneer in TV. It now is full-line CE manufacturer with TV, DVD, VCRs, satellite TV set-tops, home and portable audio, autosound and car navigation. Sampo’s Ho said all lines would be continued and no further layoffs were envisioned. Work force had been cut to 4,600 from 5,900 in 2001, with only 2,000 remaining in Germany, when Grundig reorganized after 150 million Euros in losses. Company had struggled on its own since Philips cut financial umbilical cord in 1997 after 12 years. Philips had 32% stake in Grundig, and under arrangement with Max Grundig Foundation had picked up company’s losses automatically and paid $28.5 million yearly to founder’s heirs.

Need for product innovations by Grundig was underscored by Ho in Jan. He acknowledged that Grundig suffered from inability to obtain parts needed to carry momentum with high-end products. “We have to enlarge the Grundig product spectrum,” Ho said. German brand was to be supplied with plasma screens produced by Sampo so it could compete in lucrative market for large flat- panel sets -- “which is a big weakness of the portfolio now in Grundig. So, Grundig will be able to offer product lines which had to be given up for survival in the last 2 year,” Ho said.

Ho described Grundig and Sampo as good “fit” with one another. “We'll do everything to keep Grundig existing,” he said. “Sampo has got the resources and Grundig owns a brand of high quality, as well as sales areas in Germany and Europe,” he said, and he expected Grundig would achieve turnaround this year with Sampo’s assistance. Ho acknowledged that acquisition would be 2-way street: “We need the brand and the design, the development and sales crews as well as the TV production in the Grundig works in Vienna.” He made point that despite use of Sampo components, products would be Grundig’s. “The customers buy the design and the technology of Grundig in Nuremberg -- where quality is supervised, by the way,” Ho said.

Although it’s major CE brand in Europe and U.K., Grundig perhaps is best known in U.S. for portable shortwave radios, where it holds 97.3% market share, according to NPD Intelect. Market here last year was for 18,200 radios; Sony was runner-up with 2.6% share, with all others sharing remaining 0.1%, NPD said. Market value for shortwave was $1.1 million in retail, and average selling price of 7 Grundig models was $61, compared with $136 for Sony. Shortwave line has long been handled by Palo Alto-based distributor Eton.