Zenith Wishes On A Lucky Goldstar

Chairman Jerry K. Pearlman spent much of the 1980s futilely combating the cutthroat pricing by Japanese and South Korean manufacturers that helped push Zenith Electronics Corp. deeply into the red. But on Feb. 25, Pearlman finally conceded that if he couldn't beat `em, he would join `em: For $15 million, Korea's Lucky-Goldstar Group agreed to buy just under 5% of Zenith, the last major U. S. TV maker.

The deal could turn out to be just what's needed for both companies. These days, says Goldstar's director for strategic planning, Cho Ki-Song, "nobody can stand alone." Goldstar certainly has the global reach and financial resources to help Zenith. As one of Korea's largest conglomerates, Goldstar has annual sales of $25 billion, nearly a third of them in consumer and industrial electronics. Zenith can offer technology and marketing expertise in the U. S.

Right off, the new partnership undercuts dissident Zenith shareholder Nycor Inc., which has launched a proxy fight to oust current management from the company's board. And although Goldstar has committed only to licensing a key Zenith display technology and collaborating on high-definition products, the accord could lead to much closer ties.

For starters, Zenith expects to sell more picture tubes to Goldstar, which doesn't make its own in the U. S. It also plans to buy more components from Goldstar, which already supplies the company with VCRs. The deal will bring in "tens of millions of dollars" for both companies, says a Zenith official. Zenith could use help: In 1990, it posted a $52.3 million loss on continuing operations and a 7% drop in sales, to $1.4 billion.

Zenith and Goldstar task forces are exploring other options. The companies could share distribution networks or rationalize manufacturing: Goldstar might make Zenith's smallest TV sets at low-cost Korean operations, and Zenith could build bigger-screen TVs for Goldstar at its Missouri plant.

'A TOE IN.' Goldstar may also see a way to improve its image. It is now at the low end of the U. S. color TV market with a 2% share, according to Television Digest. "They don't have the reputation with the high-end consumer," says Jerry Throgmartin, president of the 14-store H. H. Gregg chain in Indianapolis. But Zenith, with its 11.6% share, does.

For years, Goldstar has been rumored as a possible Zenith buyer. But industry sources say fear of an anti-Korean backlash in Washington has deterred the company from making an outright bid. "This could be a smart move for Goldstar. Put a toe in, and see how it feels," says Joseph Clayton, who runs Thomson Consumer Electronics' North American TV unit. Goldstar has agreed to limit its stake in Zenith to 15% until 1993.

Any big gains for Zenith and its shareholders are still years away. After the initial cash infusion and a payment for the right to use Zenith's flat screen in Korea, Zenith must wait until at least 1993, when Goldstar begins selling the TV sets, to collect royalties. But the Goldstar deal seems to be a turning point for Pearlman. It may have blunted Nycor's claim that he doesn't have a sound strategy to make Zenith profitable.