Bringing to a close a grim chapter in American business history, the nation's last remaining television manufacturer, Zenith Electronics Corp., announced Monday that it will sell a majority stake to a South Korean electronics conglomerate.
The deal ends hopes that the U.S television industry might find new life in advanced digital technologies. And Zenith will join RCA and General Electric as famous American television brands that are now in the hands of overseas companies.
"This is the end of a long saga," says Clyde Prestowitz, president of the Economic Strategy Institute. "This is an industry we invented and we introduced to the world and we got driven out of."
Under the agreement announced Monday, LG Electronics, the consumer electronics subsidiary of Korea's massive Lucky Goldstar group, will pay $350 million, or $10 per share, to boost its stake in Zenith from 5% to 57.7%. Zenith and Goldstar executives said the deal would enable the U.S company to remain a strong player in a fiercely competitive television market.
"Competition is global; this will make us much stronger," said John Koo, president of LG Electronics, which had $7 billion in sales last year. With the Zenith acquisition, Koo expects LG to surpass Thomson of France as North America's largest consumer electronics manufacturer.
"This gives us the ability to work with an organization with a significant technology base," added Al Moschner, who took over as president and chief executive of Glenview, Ill.-based Zenith in April. Zenith has lost money in nine of the past 10 years and shrunk to just 20,000 employees.
Zenith had fought for years to remain independent. Under former Chief Executive Jerry Pearlman, the company became a vocal proponent of tougher trade action against foreign imports--even as it moved much of its own production to Mexico. Zenith also made a major push to help revive the U.S. television industry with big investments in high-definition television. But it and the other U.S. television makers actually lost the battle many years ago.
Founded in 1918 by two ham radio operators, Zenith had a proud history, producing the world's first portable radio in 1924, establishing itself as an early leader in black-and-white televisions and inventing the first hand-held remote control device in 1956.
Zenith, General Electric, RCA and other industry leaders of that time sold their wares all over the world. But in what turned out to be an enormous miscalculation, they agreed to license their technology to Japanese companies such as Sony and Matsushita because Japanese government policies didn't allow them to sell directly in Japan.
Soon they were facing a tidal wave of black-and-white television exports from Japan, and that was followed in the 1970s by a wave of color TVs that all but crushed them. By 1976, Japan had 45% of the American television market, triple its share in 1970.
The Japanese also overtook their American rivals in quality. Although Motorola announced the first prototype of a "solid state"--or transistor- rather than vacuum-tube-based--television set in 1966, it was a Japanese company, in 1969, that offered the first such commercial television. RCA and Zenith didn't have complete solid state lines until 1973.
Motorola sold its television business to Matsushita in the early 1970s. General Electric sold its consumer division, including the RCA brand, to Thomson in 1987.
Goldstar has been supplying Zenith with products for more than two decades, beginning with radios, and acquired a 5% share of Zenith in 1991. Some observers downplayed the significance of the latest deal for the U.S. electronics industry, noting that much of Zenith's production is overseas while Thomson, Philips, Sony and other foreign companies maintain major manufacturing operations in the United States.
Officials at the Federal Communications Commission said Goldstar's acquisition of Zenith would have no impact on government plans to promote the use of digital television. The TV-set manufacturers involved in the Grand Alliance, an FCC-promoted consortium that is developing a digital high-definition television system, are all foreign firms, but FCC officials say the sets are likely to be built in the United States.
Still, the high value in future digital television systems will come from electronic components such as semiconductors. While Zenith was committed to using chips from American companies such as Motorola and AT&T, now the orders are more likely to go to members of the Lucky Goldstar group.
Moschner, who will continue as Zenith's chief executive, says investments from LG will help Zenith carry out its $150-million expansion plans aimed at producing big-screen television tubes in Melrose Park, Ill.
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From the Zenith to ...
