LG Electronics and Nortel today signed a definitive agreement to form a joint venture that will offer telecom and networking solutions in the wireline, optical, wireless and enterprise areas for South Korean and global customers.
The agreement was signed in Seoul, South Korea by S.S. Kim, chief executive officer and vice-chairman of LG Electronics and Bill Owens, vice-chairman and chief executive officer of Nortel. The joint venture will be tentatively named LG-Nortel Co. Ltd. This entity will combine the telecommunication infrastructure business of LG Electronics and the distribution and service business of Nortel in South Korea.
The LG-Nortel joint venture will support the strategies of both companies for ongoing development of leading-edge wireline, optical, wireless and enterprise communications and networking solutions to ignite and power global commerce. It will also reflect the companies’ commitment to leveraging best-in-class resources and expertise by joining forces with leading players in key markets, while harnessing the technology leadership of South Korea.
“Today is another milestone for Nortel as we continue to demonstrate our commitment to open up the Asia region with a best-in-class technology leader,” Owens said. “South Korea leads the world in embracing technology that enhances the human experience. Our relationship with LG better positions Nortel in the dynamic and growing Asia market, will expedite research and development, and will benefit our global customers. Nortel is clearly playing to win.”
“LG Electronics’ R&D excellence coupled with Nortel’s global presence will make this joint venture a top-ranking player in the telecommunications equipment market,” Kim said. “Our relationship will further strengthen the two companies’ collaboration in setting standards for next generation infrastructure and improving time-to-market in this competitive environment.”
Nortel will own 50 percent plus one share in the joint venture, in exchange for which Nortel will contribute its South Korean distribution and services business and pay US$145 million and other non-monetary consideration. Separately, LG Electronics may be entitled to payments over a two-year period based on achievement by the joint venture of certain business goals.
LG Electronics and Nortel will nominate certain key executives to the management team of the joint venture. It is the intention of the parties to nominate J. R. Lee from LG Electronics to be chief executive officer and Paul House from Nortel to be chief operating officer. The LG Electronics Infrastructure business and Nortel’s South Korean operations had aggregate revenues of KRW 600 billion (US$530 million) in 2004.
Closing of the transaction is subject to satisfaction of certain conditions, including regulatory and other approvals and is anticipated to close by year end.
J. P. Morgan advised Nortel and Lehman Brothers and Woori Securities advised LG Electronics in this transaction.