Daewoo Elec buy gives Videocon the tech edge

On Tuesday, Videocon is expected to make an official announcement on its acquisition of the troubled Korean chaebol (conglomerate), Daewoo's consumer durables business. The value of the acquisition (largest by an

Indian private sector company and even the largest in Korea since Shanghai Auto's acquisition of Ssangyong Motor in 2004) is estimated in the range of $680-700 million. But why exactly does Videocon need such a big-ticket acquisition?

The answer: access to technology. Daewoo Electronics possesses high-end technology in plasma display panels (PDP) TV, liquid crystal display (LCD) TVs, refrigerators, and washing machines.

For instance, it had introduced plasma display panel TVs way back in 1997, the glorious days when the chaebol was in its prime. Even now, Daewoo reportedly owns close to 10,000 domestic and foreign patents.

Market access: Apart from technology, Videocon can also access new markets. Daewoo has the largest share in the Polish TV market and leads the Vietnamese refrigerator segment for the last three years.

Analysts point out that the deal, coming after the company's acquisition of Thomson and Electrolux, is another step in the direction of Videocon realising its dream of becoming an Indian multinational.

In 2005, it acquired French firm Thomson SA's colour picture tube manufacturing business for $291 million and the Indian unit of Swedish firm, Electrolux for $76 million.

But these acquisitions have primarily been in the cathode ray tube (CRT) space, which is going out of fashion in developed markets.

Even Videocon had made announcements in this direction to diversify from CRTs when it announced the Thomson acquisition.

Beat Korea with Korea: Daewoo has a presence not only in flat panel displays, a category which is growing globally, but also in refrigerators and washing machines, where Videocon has its own brands.

The move is seen as highly synergistic with the company's strategy of growing its domestic and international business, when Videocon brings the Daewoo brand home.

"The value of Daewoo may not just be for the physical assets, but also for the natural synergy that it would add to their business," said CETMA secretary general Suresh Khanna.

Analysts say the brand would also enable Videocon to leverage the positive country-of-origin effect associated with other Korean durable brands such as Samsung and LG.

Brand bouquet: "The acquisition could be part of Videocon's strategy to build up various brands," says another industry expert.

Apart from the Videocon brand, the company also markets Japanese brands such as Akai, Sansui and Toshiba, Korean brand Hyundai and European brand Kenstar.

Other observers were not as charitable. "The acquisition does not seem to make much sense. Though Daewoo has some kind of a presence in Europe, it's not at the cutting edge of technology. Daewoo has historically been into OEM supply. So it offers no great advantage for Videocon in the international market," said another industry source.

But the Dhoots, who claim to have the largest capacity for colour picture tubes in the world, (in excess of 25 million units, they supply even to rivals) might be having other plans.