LG acquires car lighting company

LG Electronics announced on Thursday that it acquired ZKW, an Austrian automobile lighting supplier, for 1.44 trillion won ($1.33 billion).

After LG’s board of directors issued a green light to the deal earlier in the day, LG Electronics said it agreed to pay 1.01 trillion won for a 70 percent stake in ZKW. LG Electronics' holding company LG Corp. will pay 433.2 billion won for the remaining 30 percent of the Austrian firm.

Korea’s second-largest electronic producer is focusing on automobile lighting as a new driver of growth for its automotive components business. LG said that it considers ZKW, one of the biggest automotive light suppliers in Europe, as a company with “advanced technological power and growth potential.”

ZKW is the biggest acquisition in the history of Korea’s fourth-largest conglomerate. The deal is set to be finalized by the end of the year at the earliest, according to an LG conference call.

“With a global business network and distinguished IT technologies, LG Electronics will strengthen its automotive component business portfolio and develop next-generation conversion products, spearheading the future automotive parts market,” LG said in a statement.

The deal dates back to August of last year. LG bid for the company when Panasonic was in the final stages of negotiations to buy ZKW. The company was then valued at an estimated $1.2 billion.

LG’s purchase of ZKW closely follows its home appliance rival Samsung Electronics’ acquisition of Harman International Industries, a U.S. auto component supplier, for $8 billion in late 2016. Harman’s leadership in infotainment, cybersecurity and telematics, when combined with Samsung’s 5G expertise, display technology and security solutions, may boost Samsung sales as automakers scramble to find new technologies.

ZKW was established in Vienna in 1938 and is now headquartered in Wieselburg, Austria. It supplies LED headlights and lighting modules to major automakers including GM, Ford, Mercedes-Benz and BMW. ZKW’s revenue last year was 1.26 billion euros ($1.53 billion), and it posted an average revenue growth of 20 percent over the past five years.

The company recently rolled out an LED headlight that can help reduce glare from high-beam lights. The light can block out the part of the high beams that bothers other drivers, improving convenience and safety.

“The acquisition of ZKW will not only help LG Electronics obtain a new growth engine, but it will also boost synergy with its existing vehicle component business and smartphones,” said Park Kang-ho, an analyst with Daishin Securities.

According to IHS Markit, the global automotive lighting market will grow from $24.5 billion won in 2017 to as much as $29 billion by 2020. Headlights make up more than 70 percent of the market, and they are expected to grow by an average of 5 percent annually through 2020.

LG launched an automobile products division in July 2013 to develop and produce components such as infotainment systems and advanced driver assistant systems, and to work on vehicle engineering. The company’s new direction was prompted by its increasingly weak smartphone sales.

In its first-quarter earnings report released on Thursday, LG said its vehicle component division posted operating losses of 17 billion won and revenue of 840 billion won. The operating losses improved by 58.6 percent from last quarter, and the division is expected to finally be profitable after the ZKW deal is finalized, analysts expect. LG posted its highest quarterly profits since 2009 during the first quarter, on the back of record-high profits from premium TVs.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]