LG going on buying spree

LG Electronics has acquired Austrian-based automotive light maker ZKW in a bid to expand its footsteps into car parts business.

The board of directors of the Korean tech giant approved the acquisition, costing 1.1 billion euros ($1.3 billion), Thursday. LG Electronics will buy a 70 percent stake in ZKW, while LG Corporation, the holding company of LG Group will purchase the remaining stake

The deal is the largest merger and acquisition (M&A) deal in LG Group's history, and LG expects the strategic move will provide synergy in its automotive components business.

Industry watchers say the acquisition of Austrian company is a symbolic move for LG Group, one of the country's largest conglomerates, as it has cemented its reputation for playing it safe rather than taking risks.

LG has never conducted an M&A worth more than 500 billion won. LG Group's chemicals maker LG Chem acquired local agrochemical company Dongbu Farm Hannong for 424.5 billion won in 2016 and LG Household & Health Care acquired local cosmetic company The Face Shop for 466.6 billion won in 2010.

Established in 1938, ZKW is a leading global leader in lighting sector in automotive lighting sector. The Austrian light maker recorded revenue of 1.26 billion euros lasts year and has seen an average annual growth rate of more than 20 percent over the past five years. It is a supplier of many major European carmakers including Audi BMW, Porsche and Mercedes-Benz.

"Through this deal, LG is adding a new growth opportunity to its automotive components business, a future growth opportunity with tremendous potential," said LG Electronics CEO Jo Seong-jin.

LG Electronics has had its eyes on the automotive components market for several years while it was struggling with sluggish sales at its smartphone business.

In 2013, the company established a vehicle components division and has supplied infotainment parts, an advanced driver assistant system and other devices. The vehicle components division recorded revenue of 3.5 trillion won in 2017, a 26 percent increase from the year before.

LG forecasts that the global automotive lighting market is expected to grow from $24.5 billion in 2017 to $29 billion by 2020.

Expert says the rare M&A deal will help strengthen LG Electronics' portfolio in the car parts business.

"With the acquisition of the Austrian company, LG Electronics could beef up its auto parts business capacity," said Noh Kyung-tak, an analyst at Eugene Investment & Securities. "LG could also secure becoming an original equipment manufacturer (OEM) for companies such as BMW, Audi, Mercedes-Benz, Porsche, Volkswagen and Volvo."

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