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Our Bureau

New Delhi , July 7

THE Videocon group on Thursday announced its second successive buyout in less than a fortnight involving a foreign player in the consumer electronics domain.

The group will acquire the entire (91.85 per cent) shareholding of AB Electrolux (ABE) in its loss-making Indian subsidiary, Electrolux Kelvinator Ltd (EKL). In addition to gaining control of EKL's three facilities in India, Videocon, under a separate licence agreement with ABE, will distribute/market products under the Electrolux, Kelvinator and Allwyn brands in India and other SAARC countries.

The licences will be managed through a new branch office of ABE in India, which together with Videocon, will promote sales of Electrolux products. The branch office will also manage the global sourcing needs of ABE in India.

Interestingly, after the completion of the deal, ABE will invest about $94 million (about Rs 409 crore) in the global depository receipts of Videocon Industries to acquire a 5 per cent stake in the company.

Speaking to Business Line, Mr Anders Edholm, Vice-President (Communications), AB Electrolux, said that the total cost of this transaction would not exceed 600 million Swedish Kronor ( about Rs 331 crore) for the company, adding that its Indian operations has moved from a subsidiary to a licensing model. Mr Edholm, however, declined to give details on whether the licensing agreement required Videocon to pay royalty for products sold under the Electrolux and Kelvinator brands.

The agreement between Videocon and ABE also envisages a sourcing partnership whereby AB Electrolux will source both components and finished goods for the global markets from its Indian operations.

"In fact, the trade could go up to Rs 5,500 crore per annum in the next few years. AB Electrolux has been shifting its plants from high-cost locations to low-cost countries and they can well use India as a production base," Mr V. N. Dhoot, Managing Director, Videocon International, said. He added that ABE might shift the production of a few select items to India.

Videocon, on its part, plans to upgrade the manufacturing facilities for electric motors and compressors as per ABE's specifications so that the units could be used as a low-cost manufacturing base for key components of ABE's end-products globally.

According to a Videocon statement, the total expenditure for these activities over the next three years would be Rs 300 crore, which would be funded from internal accruals.

ABE, in a statement, has said that it is looking at developing India as a global source for goods and services with a sourcing target of $300 million a year by 2007.

Videocon has also committed to spend over Rs 100 crore on advertisement and sales promotion for the Electrolux brand (for which it has entered into a five-year licence agreement).

The company will also continue to get R&D support from ABE for launching various high-end models of washing machines and refrigerators in the Indian market.

Amalgamation: Meanwhile, Videocon Industries Ltd today said it has approved the scheme for the amalgamation of Videocon International with the company. The company's board has fixed the swap ratio at 1:5, that is, shareholders of Videocon International holding five equity shares will get one share of Videocon Industries. Thomson, which sold its picture tube business to Videocon, will have a 14 per cent stake in the company.

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