Fridays Chicago Tribune...........................................
Korean crisis leaves Zenith outlook fuzzy
By Jon Bigness
Tribune Staff Writer
Thursday, December 25, 1997
Despite a Christmas Eve gift of a $20 million line of credit, problems for Glenview-based Zenith Electronics Corp. continue to mount like a pile of coal.
After losing money throughout the 1990s, the consumer electronics company thought it found a savior in 1995 when LG Electronics Inc. bought a controlling stake. But as South Korea's financial markets crumble, concerns are growing about the Seoul-based savior itself, renewing questions about Zenith's future.
Zenith stock bounced back a bit Wednesday, rising 25 cents, to $5.37. But on Tuesday the shares plunged $1.06--or 17 percent--to a 52-week low of $5.12 after Standard & Poor's downgraded its credit rating and outlook on the company, citing the Korean crisis.
On April 10, Zenith stock touched $13.12 a share, so its shares are off 59 percent from the 52-week high.
''Zenith continues to be a company in transition,'' said Robert Gutenstein, director of research for Voorhis Kalb in New York. ''The motivation to lowering the credit rating has more to do with the problems in Korea than the problems at Zenith. But if LG's economic outlook is at risk, perhaps the guarantors will pull back.''
So far, lenders haven't cut Zenith off from the credit punch bowl. The company said Wednesday it signed a $20 million one-year credit agreement with Societe Generale of France.
The funds will be used for general corporate purposes, the company said, and LG Electronics guaranteed the uncommitted credit line.
Still, that might not be enough. Zenith said it still needs additional financing to support its plans, even though LG guaranteed two $30 million credit facilities for it just last month. ''We are having ongoing discussion with various lenders in that regard,'' said Zenith spokesman John Taylor.
And analysts are growing worried that LG Electronics, formerly known as Goldstar Co., may have trouble obtaining bank loans at home.
Standard & Poor's said it lowered Zenith's credit and debt status because it doubts LG Electronics will be able to support it financially to the same extent it has in light of South Korea's deteriorating economic situation. The rating company also cited fierce competition in the stagnant color television market as a concern.
''Declining color television prices over the past few years has resulted in considerable operating losses, and Zenith relies on LG Electronics Inc.'s support to offset the operating losses and help finance its turnaround efforts, '' Standard & Poor's said in a statement.
''Cash flow measures are weak, with the company registering an operating loss of over $100 million through the first nine months of this year, on revenues of $825 million.''
Taylor said LG, which owns 57.5 percent of Zenith, is ''very profitable'' and stronger than most South Korean companies. Zenith is confident it will continue to forge ahead with continued support from its parent, he said: ''I think that we've gotten tremendous support from LG, and there are no concerns here.''
But analysts aren't so sure. ''It's a company with a lot of problems,'' Gutenstein said. ''Where 20 years ago Zenith was one of the richest companies in the country, it's now a pauper.''
Without support from LG Electronics, ''Zenith would have a great deal of difficulty, because they've hocked everything already,'' he said. ''They've sold receivables, taken leases on equipment (and) they have lines of credit. I don't know what a lender would find unencumbered right now.''
There are no signs that LG is backing away, however. With the Zenith brand name and investments in digital set-top boxes and high-definition television, or HDTV, it may be betting that things will work out, analysts say.
Experts say markets for HDTV and digital set-top boxes are poised to explode. The majority of broadcasters are required to convert to HDTV programming by 2006, and Zenith, one of the pioneers in developing standards for the high-quality sets, expects to unveil new HDTV models late next year.
Last year, Zenith won a $1 billion, five-year contract to make 3 million digital TV set-top boxes for Americast, a partnership of phone companies and Walt Disney Co. Zenith said that it has started shipping the boxes, which will accommodate several video delivery systems, including direct broadcast satellite and so-called wireless cable, as well as traditional fiber-coaxial cable and optical fiber.
But competition in the digital consumer electronics market is fierce. Zenith will have to square off with other members of the so-called Grand Alliance, the consortium of consumer electronics companies that came up with standards for HDTV. |
