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To: foundation who wrote (88359)	11/28/2000 6:16:31 AM
From: foundation	Read Replies (1) \| Respond to of 152472

Philips close to alliance By John Burton in Seoul and Ian Bickerton in Amsterdam Published: November 27 2000 20:45GMT \| Last Updated: November 28 2000 07:51GMT www.ft.com Philips, the Dutch electronics company, and South Korea's LG Electronics are close to merging their mobile phone units following an agreement to unite their cathode ray tube operations to form the world's industry leader. The proposed mobile phone partnership, which the two sides intended to announce on Monday alongside the CRT deal, is aimed at increasing their competitive strength in the production of handsets for third-generation (3G) networks. Philips, asked to explain why the expected announcement was not made, said: "No deal is done until it is done." Philips' chief operating officer, Gerard Kleisterlee, who will become president next year, confirmed that discussions with LG were taking place and Philips was not talking to other parties. The handset tie-up is crucial to LG Group's ambitions to win a licence next month to operate a 3G mobile network in South Korea through its subsidiary, LG Telecom. It needs 1,300bn won ($1.09bn) to pay for that licence. Analysts said that the merger strengthened its hand against SK Telecom and Korea Telecom. It is also vital to Philips as it tries to catch up with industry leaders such as Nokia, Ericsson and Motorola. Philips has developed GSM handsets for the European and Asian markets, while LG's strength lies in the rival CDMA standard used for second-generation digital mobile networks in South Korea and parts of the US. Combining the two standards in a single company would give access to the global 3G handset market, which is expected to be divided between GSM and CDMA. The merged unit, with probable annual sales of E5bn ($4.2bn) and an initial market share of 5-6 per cent, is expected to be led by Thom Swartsenburg, head of Philips Consumer Communications. The merger moves will be seen as bad news for South Korea's Samsung Electronics. A phone tie-up with Philips would give LG a competitive edge over its domestic rival in the international market for handset production. The merged CRT unit will have 25 per cent of the market, knocking Samsung, with 15 per cent, off the Korean top spot for the production of television and computer monitor tubes. The value of the mobile phone deal, estimated at about $5bn, would make it the single largest foreign investment in a South Korean company. This cash injection will ease concerns about the financial health of LG Group. Share prices for its main units have fallen sharply owing to the group's high debt burden. Mr Kleisterlee said the deal, expected to close in the first half of 2001, would realise synergies of $200m-$300m in two years and boost earnings immediately. Philips shares closed at E42.89, up 2.85 per cent on Monday.