Bang & Olufsen Outsources TV Making as Takeover Talks Continue

  • LG Electronics to make TVs as B&O focuses design, acoustics
  • Pact with LG `crucial' for Danish company to reach margin goal

Bang & Olufsen A/S will outsource the production of televisions to LG Electronics Inc. to cut costs while the Danish maker of high-end hi-fi systems said it remains in talks to be bought by an unnamed suitor.

The 91-year-old electronics maker said its pact with LG will lead to annual savings of 150 million kroner ($23 million) to 200 million kroner when fully implemented over the next three years. The partnership is crucial to reach a goal of an operating margin of about 7 percent and a positive free cash flow, it said in a statement Friday.

“We make about 30,000 TVs a year and LG produces about 40 million,” Bang & Olufsen Chief Executive Officer Tue Mantoni said by phone. “What we’re known for in the world are beautiful TVs, phenomenal design, beautiful sound and an integrated experience.”

B&O also said its still discussing a sale of part or all of the company, but has yet to enter a binding agreement with the potential buyer. The maker of $8,000-plus TVs has struggled to win buyers for its products as prices for flat-screen sets tumble and more people listen to music on smartphones rather than home hi-fi systems. Reports of takeover interest have appeared intermittently since early 2008, when former chief Torben Ballegaard Soerensen was ousted and disappointing holiday sales led the shares to lose more than a quarter of their value in a day.

Mantoni said LG will take responsibility for development and production process, while B&O will drive the overall concept, design and acoustics. The first LG-produced TV is expected to sold next year.

“We’ve been losing significant amounts of money on developing and building the TVs because we’re sub-scale,” Mantoni said.

B&O shares plummeted during the financial crisis and failed to recover, despite jumping after the manufacturer said it was approached about a takeover in November.

The stock rose 6.7 percent to 71.50 kroner at 9:20 a.m. in Copenhagen. Even with today’s gain, the shares are down 13 percent this year, giving the company a market value of 3.1 billion kroner.

B&O last year said it would sell its automotive sound-system business to Harman International Industries Inc. to focus on consumer products.