JVC,Kenwood agree on capital,business pact-sources

TOKYO, July 20 (Reuters) - Japan's JVC (6792.T: Quote, Profile, Research) has agreed to form a business and capital alliance with Kenwood Corp. (6765.T: Quote, Profile, Research) to boost its financial strength and keep up with fierce price competition, sources close to the matter said on Friday.

Under the pact, struggling consumer electronics maker JVC, owned 52 percent by Matsushita Electric Industrial Co. Ltd. (6752.T: Quote, Profile, Research), will raise 30 billion yen ($250 million) by issuing 20 billion yen worth of new shares to Kenwood and 10 billion yen worth of new shares to Sparx Asset Management (8739.Q: Quote, Profile, Research).

The deal would lower Panasonic maker Matsushita's stake in JVC to about 39 percent, taking the loss-making company off its consolidated accounts. After the transaction, Kenwood would hold a 10 percent stake in JVC, whose official name is Victor Co. of Japan Ltd., and Sparx would own a 5 percent stake.

JVC and Kenwood in June reached a preliminary agreement to merge under a holding company as early as 2008, but the two firms are set to continue talks on the matter since there still is resistance within JVC against the plan, the sources said.

Matsushita, the world's largest consumer electronics maker, has been trying to reduce its JVC stake, worth about 48.5 billion yen, because its persistent losses have been weighing on its group-based earnings performance.

The Osaka-based company chose U.S. private equity firm Texas Pacific Group [TPG.UL] as its preferred bidder for its JVC stake back in March.

But the talks fell through after banks had resisted funding the acquisition because they were unconvinced that TPG could turn around a company heading for its fourth straight annual loss.

Although JVC enjoys brisk demand for hard disk drive-equipped camcorders, its rear-projection television sales have been hit by sharp falls in plasma TV prices.