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TCL Executing Hostile Takeover to Expand Home Appliance Business
TCL, the 2nd largest TV set maker, is attempting to acquire Guangdong Homa Appliances, a big manufacturer of refrigerators, in a hostile takeover bid.
TCL already has a 20% stake in Homa Appliances, whose stock it began snapping up at the beginning of the year. The move, at diversifying TCL's business portfolio, comes in response to radical changes in the business environment. After years of rapid growth, backed by a vast domestic market, Chinese appliances makers are under strong pressure to branch out into new businesses and markets. Calling Homa Appliances "an extremely competitive company," Li Dongsheng, chairman of TCL Electronics, the core unit of the TCL group, suggested in early March that the group would continue amassing Homa shares in the coming months.
TCL has purchased its stake in Homa Appliances through Huizhou TCL Home Appliances Group, a subsidiary that makes "white goods" like refrigerators and washing machines. TCL has spent over 1 billion yuan ($152 million) buying Homa Appliances shares. Homa was founded in 2002 by Cai Shier, who spent years working for various manufacturers in the industry. The company specializes in designing and manufacturing fridges for other companies. It is known as "Foxconn of fridge manufacturing." Homa racked up 7.3 billion yuan in sales in 2019, but that figure is dwarfed by other Chinese home appliances giants like Haier Group, which posted around $30 billion in sales of fridges and other appliances. But Homa earned around 80% of its revenue overseas, a higher share than those of most of its Chinese rivals. It sold more fridges outside China than any domestic competitor in 2019, accounting for more than a fifth of all Chinese fridges sold abroad, according to Huajing Research, a market research specialist.
In contrast to Homa, TCL produces mainly "black goods" -- electronic devices housed in black or dark casings, such as TVs and LCD displays. TCL is not a big player in white goods in China or overseas, although it makes air conditioners and a few other products in the category. With its attempted takeover of Homa Appliances, TCL hopes to broaden both its geographic and business scope. But the move went down badly with Homa. TCL repeatedly demanded that Homa hold extraordinary shareholders meetings to place its executives on Homa's board. Homa refused, citing "procedural deficiencies." But on March 23, Homa finally agreed to hold a general shareholders meeting on April 9. While its founder and other top executives have remained silent about the matter, the company may take steps to thwart the takeover bid.
TCL's drive to acquire Homa is driven by a shrinking domestic market. Overall sales of home appliances in China dropped 11% in 2020 from the previous year to 705.6 billion yuan, according to Beijing-based consultancy All View Cloud. By category, sales of TVs slid 12%, a steeper fall than fridge sales, which slipped 1%, and washing machines, which declined 6%.
Appliances sales were dented by the COVID-19 outbreak, which depressed consumer spending in the early months of last year. But structural factors were also at work: Most Chinese households already have these products. Sales of home appliances also shrank in 2019.
TCL eked out a 1% rise in net profit to 1.8 billion Hong Kong dollars ($231 million) in 2020. While exports to North America and some other major overseas markets were brisk due to strong "stay-at-home" demand, low unit prices reined in its revenue growth. The price of TCL's TVs per inch was $6.6 in the July to September quarter last year, about half that of the world's two largest manufacturers, South Korea's Samsung Electronics and LG Electronics, according to Omdia, a British market researcher.
TCL is trying to carve out a future for itself as a full-range home appliance maker. The strategy is designed to enable the company to ride out fluctuations in demand for various products, while increasing the value of its brand.
"The Chinese home appliance industry has been struggling with excess capacity and a saturated market," said Liang Zhenpeng, an independent consumer electronics analyst. To ensure their long-term viability, Chinese home appliances makers "need to raise unit prices of their products and accelerate globalization of their operations."
TCL, the 2nd largest TV set maker, is attempting to acquire Guangdong Homa Appliances, a big manufacturer of refrigerators, in a hostile takeover bid.
TCL already has a 20% stake in Homa Appliances, whose stock it began snapping up at the beginning of the year. The move, at diversifying TCL's business portfolio, comes in response to radical changes in the business environment. After years of rapid growth, backed by a vast domestic market, Chinese appliances makers are under strong pressure to branch out into new businesses and markets. Calling Homa Appliances "an extremely competitive company," Li Dongsheng, chairman of TCL Electronics, the core unit of the TCL group, suggested in early March that the group would continue amassing Homa shares in the coming months.
TCL has purchased its stake in Homa Appliances through Huizhou TCL Home Appliances Group, a subsidiary that makes "white goods" like refrigerators and washing machines. TCL has spent over 1 billion yuan ($152 million) buying Homa Appliances shares. Homa was founded in 2002 by Cai Shier, who spent years working for various manufacturers in the industry. The company specializes in designing and manufacturing fridges for other companies. It is known as "Foxconn of fridge manufacturing." Homa racked up 7.3 billion yuan in sales in 2019, but that figure is dwarfed by other Chinese home appliances giants like Haier Group, which posted around $30 billion in sales of fridges and other appliances. But Homa earned around 80% of its revenue overseas, a higher share than those of most of its Chinese rivals. It sold more fridges outside China than any domestic competitor in 2019, accounting for more than a fifth of all Chinese fridges sold abroad, according to Huajing Research, a market research specialist.
In contrast to Homa, TCL produces mainly "black goods" -- electronic devices housed in black or dark casings, such as TVs and LCD displays. TCL is not a big player in white goods in China or overseas, although it makes air conditioners and a few other products in the category. With its attempted takeover of Homa Appliances, TCL hopes to broaden both its geographic and business scope. But the move went down badly with Homa. TCL repeatedly demanded that Homa hold extraordinary shareholders meetings to place its executives on Homa's board. Homa refused, citing "procedural deficiencies." But on March 23, Homa finally agreed to hold a general shareholders meeting on April 9. While its founder and other top executives have remained silent about the matter, the company may take steps to thwart the takeover bid.
TCL's drive to acquire Homa is driven by a shrinking domestic market. Overall sales of home appliances in China dropped 11% in 2020 from the previous year to 705.6 billion yuan, according to Beijing-based consultancy All View Cloud. By category, sales of TVs slid 12%, a steeper fall than fridge sales, which slipped 1%, and washing machines, which declined 6%.
Appliances sales were dented by the COVID-19 outbreak, which depressed consumer spending in the early months of last year. But structural factors were also at work: Most Chinese households already have these products. Sales of home appliances also shrank in 2019.
TCL eked out a 1% rise in net profit to 1.8 billion Hong Kong dollars ($231 million) in 2020. While exports to North America and some other major overseas markets were brisk due to strong "stay-at-home" demand, low unit prices reined in its revenue growth. The price of TCL's TVs per inch was $6.6 in the July to September quarter last year, about half that of the world's two largest manufacturers, South Korea's Samsung Electronics and LG Electronics, according to Omdia, a British market researcher.
TCL is trying to carve out a future for itself as a full-range home appliance maker. The strategy is designed to enable the company to ride out fluctuations in demand for various products, while increasing the value of its brand.
"The Chinese home appliance industry has been struggling with excess capacity and a saturated market," said Liang Zhenpeng, an independent consumer electronics analyst. To ensure their long-term viability, Chinese home appliances makers "need to raise unit prices of their products and accelerate globalization of their operations."
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