LG Electronics said it plans to raise $940 million via a rights offering in a bid to boost investment in its struggling handset unit and other core businesses. News of the share sale sent LG's stock plunging 14 percent amid fears that the rights offering will dilute the holdings of current shareholders.
The electronics conglomerate, the world's third-largest handset maker by volume after Nokia (NYSE:NOK) and larger South Korean rival Samsung, said the offering will allow it to invest in key businesses like smartphones as well as hire new workers. The are sale is the first for LG since it raised around $564 million in 2005.
"A share issue might be a better option from LG's point of view, since borrowing and issuing debt may turn out to be more costly," Oh Dong-ge, a senior fund manager at Daishin Asset Management, which owns LG shares, told Reuters. "LG is taking certain risks and it is betting on an already struggling smartphone business just when the operational environment is not friendly either. ... It is hard to say who might be interested in supporting this potential rights offer scheme, but my guess is it would be weak."
LG's handset business has been in the red for the past six quarters, and its prospects did not look bright when it posted third-quarter earnings last week. The company has struggled to keep up with Apple (NASDAQ:AAPL) and Samsung, which became the world's largest smartphone maker in the third quarter. In the company's Mobile Communications division, LG reported a 14.9 percent quarter-over-quarter decline in sales. In the company's handset division--which sits inside of LG's Mobile Communications division--LG reported a 16 percent decline in quarter-over-quarter sales.
In the third quarter LG said it shipped 21.1 million handsets--down from the 24.8 million the company shipped in the second quarter. LG blamed the decline on a slowdown of feature phone and smartphone sales. To counter its slide, LG said it plans to focus on shipments of newer, high-end LTE smartphones. Specifically, LG CFO David Jung promised the company would release new high-end phones in the U.S. and Japanese markets in the coming months, according to the Wall Street Journal. Analysts quoted by Bloomberg noted the company's line of Optimus smartphones is close to a year old and due for a refresh.
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
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