LG Electronics Acquisition Analysis

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Acquisitions by LG Electronics and its subsidiaries

Given below are the LG Electronics? five major subsidiaries along with its stake

Subsidiary Name Stake
LG Display 37.90%
LG Innotek 50.60%
Hi Plaza Inc. 100.00%
Hi Business Logistics 100.00%
System Air-Con Engg Application 100.00%

Following are some of the Transactions involving above subsidiaries

Sr. No Investor/Buyer Target Seller Deal size (in $m) Date Comments % Stock Purchased
1 LG Electronics Co. Ltd. LS Mtron Air Conditioning Division LS Mtron Ltd. 139.50 10th March 2011 The acquisition includes handover of Mtron?s Jeonju factory and research and development workers. The Air Conditioning Division generated revenue of KRW 220 billion in 2010.
2 LG Display Co., Ltd. Image & Materials, Inc Daeduck Innopolis Patent Technology Commercialization Investment Fund, Innopolis Partners LLC 32.52 4th March 2011
3 LG Display Co., Ltd. Gumi LGE TV factory and Gumi LGE learning center NA NA 25th Feb 2011
4 LG Display Co. Ltd. New Optics Ltd. New Optics Ltd. 8.81 Jul-08 New Optics produces backlight units. 36.70%

Total No. of acquisitions data available from Jun-08 to till date is 13

Sources i) http://investing.businessweek.com

ii) LG Display SEC filings

Sample Acquisition Analysis

Investor/Buyer LG Display Co. Ltd.
Target New Optics
Month of Acquisition Jul-08
Size of the deal $8.81 m
Stake Acquired 36.7
Years in Business 6

NEW OPTICS Ltd. was incorporated on August 1, 2005 to manufacture back-light parts for TFT-LCD.

Relevance to LG Display

LG Display manufactures LCD displays for electronic devices.

Backlight Units is a major key component for LCD display in terms of percentage cost in the total price (30%) as shown in pie chart below.

Cost structure lcd1.jpeg

Reasons for Acquisition of Stake

Reason 1: Backward integration & Response to competition


"In order to reduce our component and raw material costs and our dependence on any one supplier, we generally develop compatible components and raw materials and purchase our components and raw materials from more than one source. However, we source the key components and raw materials from a limited group of suppliers in order to ensure timely supply and consistent quality."

"We maintain a strategic relationship with many of our key material suppliers, and from time to time, we make equity investments in our material suppliers as part of our efforts to secure a stable supply of key components and raw materials."

Manufacturer BLU Procurement
Samsung Through subsidiary- Chilin Co
CMO Self-sufficiancy upto 70%

Reason 2: Huge anticipated demand and shortage of supply


Lg lcd sales.jpeg

Shortages were reported in 2010 for backlight unit which show that acquisition of strategic stake was required for securing supplies

Key Component Shortages Limiting Growth of LED Backlight Units for LCD TVs

"SANTA CLARA, CALIF., July 19, 2010?The LED backlight unit has emerged as a key factor in the TFT LCD industry, and is expected to maintain its growth momentum for the next several years. According to the latest DisplaySearch Quarterly LED Backlight Report, LED backlight shipments will pass those of CCFL backlights in all large-area TFT LCD panels and achieve 80% penetration in Q4?12. ""

Reason 3: Keeping pace with the BLU technology

i) Substitution of DBEF or BEF with diffuser films would reduce costs by more than 10%.

ii) By raising the CCFL luminescence efficiency 15%~20%, the backlight?s BEF can be replaced to reduce costs

Source:TFT-LCD Key Components Market Update, 2007


Reason 4: Strong R&D of New Optics

Patents held by New Optics in 2010

Sr.No. Country Code DocNo Title Filed Inventor
1 KR 20080103869 FRAME FOR BACKLIGHT UNIT 5/25/2007 cheon in gi
2 KR 100894257 GLASS FIBER REINFORCED FLEXIBLE MOLD FOR BARRIER RIB MANUFACTURE OF PLASMA DISPLAY PANEL AND FABRICATION METHOD THEREOF 10/12/2007 park lee soon
3 KR 20100076154 HARD COATING AGENT FOR MODIFICATING THE SURFACE OF TRANSPARENT PLASTICS AND METHOD FOR PREPARING FOR THE SAME 12/26/2008 lee kyu chang
4 KR 20100127198 HARD COATING AGENT FOR MODIFICATING THE SURFACE OF TRANSPARENT PLASTICS AND METHOD FOR PREPARING FOR THE SAME 11/19/2010 han sang do
5 KR 100995243 MANUFACTURING METHOD AND THAT CYLINDRICAL MOLD OF NANO PATTERN FORMATION CYLINDRICAL MOLD 9/15/2010 kim yu sung
6 KR 20110030124 ILLUMINATION DEVICE USE LIGHT GUIDE PANEL 9/17/2009 cheon in gi
7 KR 101026497 THE VACUUM CHAMBER INSIDE WHERE THE HIGH PRECISION STAGE IS INSTALLED AND COOLING DEVICE 9/15/2010 sin myeong dong

Reason 5: Good relationship with Wooree Group {Other major stakeholder(41%) in New Optics}

Success Assessment

Source:Korea Display Market Outloook, November 2009 by DisplayBank