International Business: SOUTH KOREA
WILL LUCKY GOLDSTAR REACH ITS PEAK WITH ZENITH?
In the old days, South Korea's Lucky Goldstar group was big but decidedly sleepy. Dominated by members of the founding family, the group lagged behind rival Samsung in high-tech fields. It was slow-footed abroad, too, failing to make big gains in the U.S. television market, for example. "I used to wish I could wave a magic wand to lift our U.S. market share," recalls Executive Vice-President Kim Young-Jun.
Traces of the old Goldstar are hard to find these days. The family has taken a backseat as professional managers have moved in, including several with U.S. experience. The name has been changed to a zippier LG. And after years of a cautious romance with Zenith Electronics Corp., the group's LG Electronics jumped at the chance to buy majority control for $350 million on July 17. The bold move catapulted the company ahead of Samsung in high-definition television (HDTV) and multimedia, while outflanking a major Asian suitor at the same time. "There's no doubt that the multimedia battle will be staged in America," says LG Electronics President John Koo, who is fluent in English.
Zenith, which hasn't made money since 1988 and had been looking for a cash infusion, says it was contacted in April by an unspecified Asian consumer-electronics company to discuss a possible acquisition. But that company did not make a sufficiently rich offer, and the talks broke off, at least temporarily. Korean sources identify the company as Matsushita Electric Industrial Co., which was flush with dollars after the sale of MCA. Zenith declined to identify the potential buyer, and Matsushita denies it was bidding for Zenith.
Whoever the mystery bidder was, its possibly richer bid spurred LG into action. Zenith CEO Albin F. Moschner called Koo on May 16 to inform him about the talks. That revved up LG Electronics executives, particularly Chairman Lee Hun-Jo, a 27-year manager who was promoted to the top position earlier this year.
The real gems at Zenith, Lee believed, were the company's digital HDTV and multimedia technologies, among the world's best. Overall, the Koreans reckoned that personal computers and cable television will ultimately merge in the form of set-top boxes, which will provide multimedia products to consumers. "LG had been eyeing Zenith for a long time, and it could have been devastating for the company if Zenith was to be acquired by any other company," says an LG source.
That's why, another senior executive says, "it took only a few minutes for us to agree that we should act quickly and decisively." Within hours, the negotiating team, consisting of General Manager Teddy Hwang and another executive, was on a plane bound for Chicago. They met Moschner in a hotel near his home on May 20, a Saturday. "Al Moschner gave us a great favor canceling his plan to play baseball with his kids," recalled Hwang. By June 27, a written offer was submitted to Zenith, and the deal was closed on July 17, unprecedented speed for a takeover by a Korean company.
OUTFLANKING SAMSUNG. LG Electronics, which is Korea's largest consumer-electronics manufacturer, with 1994 sales of $6.4 billion, will provide its production technology to Zenith, while the American company will bring its HDTV and multimedia technology to the table. "We see HDTV as a global thing," says Koo. "What happens in the U.S. has a lot of implications for the rest of of the world."
The deal is particularly sweet for LG because it steals a march on Samsung Electronics. Although a huge power in dynamic random-access memory (DRAM) chips and liquid-crystal displays, Samsung hasn't yet been able to obtain the same sorts of HDTV technologies. It does have a 40% stake in personal computer maker AST Research Inc., based in Irvine, Calif., but that isn't as technologically hot as Zenith. "By making this purchase, LG has definitely moved ahead and is closer to being a major player in the set-top-box market," says David Andrews, chief executive officer of Interlingua in Redondo Beach, Calif.
Together the Korean companies may have taken a lead over Japanese rivals, preoccupied with the home market and their analog HDTV technology. "I really believe that the Koreans are potentially setting themselves up to take control of the set-top-box market," says Andrews. For top LG executives, it's suddenly a dramatically different company from the one they inherited.By Laxmi Nakarmi in Seoul, with Richard A. Melcher in Chicago and Edith Updike in Tokyo