Following last week’s confirmation of its plans to sell its AV division to Onkyo, Pioneer has found a buyer for its DJ equipment business – but it’s not going to be completely hands-off
Pioneer has today announced the sale of its DJ equipment business, which recently marked its 20th anniversary with the launch of the PLX-1000 turntable (above), leaving the company free to concentrate on its automotive operations.
The sale has involved the creation of a new company, provisionally called Pioneer DJ, which will be jointly owned by Pioneer and investment company Kohlberg Kravis Roberts & Co. L.P., which was founded in New York in the mid-1970s and now has operations in the USA, Europe and the Middle East, and in the Asia-Pacific region.
KKR will then acquire all the outstanding shares of Pioneer DJ, via a holding company PDJ Holdings Co., Ltd., for around ¥59bn, or just under £340m, and Pioneer will then acquire newly-issued shares in that holding company to make it 85.05% owned by KKR and 14.95% by Pioneer.
Still with me? It’s the same sort of deal done to enable the transfer of Pioneer’s AV and other domestic audio businesses to Onkyo last week and, as with the Onkyo deal, Pioneer will licence its brand-name for use on forthcoming product, and will continue to have some involvement in the ongoing development and promotion of new products.
KKR Japan CEO, Hirofumi Horano, says that ‘KKR will work together with Pioneer DJ’s innovative management team and employees, and our investment partner Pioneer, to support further long‐term growth of the business.’
In a statement of its revised business strategy, Pioneer says that it ‘will concentrate management resources in Car Electronics, and we will build a business structure that is centered on Car Electronics. Our goal for the home AV and DJ equipment businesses is to work with outside partners to expand the businesses and increase brand value.’
The long-running saga of Pioneer’s sale of its home AV business to Onkyo has at last been resolved, with the announcement that agreement has been reached for the sale, which will also see Pioneer’s phone and headphone operations transferred to Onkyo ownership.
Following reports a month or so back suggesting Pioneer was looking for a way to cut its losses in the AV business by licensing its home cinema operations to Japanese company Funai, a new strategy has emerged, which will see it joining forces with a Hong Kong private equity company and Onkyo’s AV operations.
An announcement made today says that ‘Pioneer Corporation, Onkyo Corporation and Baring Private Equity Asia have reached a basic agreement to commence discussions with an eye to integrating a part of Home AV business operations between Pioneer and Onkyo.’
Explaining that the move has been brought about by the increasing shift to digital entertainment services, the three say that ‘To cope with such changes of the market, Pioneer and Onkyo will make an effort to increase competitiveness by capitalizing on the resources of the two companies such as strong brand power and superior technologies. Also, the capital participation of Baring will maximize synergies including business expansion.’
Both Onkyo and Pioneer will retain their current brands, while ‘a portion of shares in Pioneer Home Electronics Corporation, a wholly-owned subsidiary of Pioneer, will be transferred to Baring and Onkyo. After the transfer, Baring will have 51% stake in PHE. The remaining 49% will be determined in consultation between the related parties.’
In other words, it’s a different approach, but achieves a similar outcome to that suggested a month ago: Pioneer more or less divests itself of the development, manufacturing, marketing and sales of its AV receivers, home cinema in a box systems, Blu-ray players, soundbars and the like.
Yes, the name will carry on, and products will continue to be sold, but Pioneer Corp – the parent company – will only have a relatively small stake in Pioneer Home Electronics Corporation, the company it set up just a year ago as a wholly-owned subsidiary. With hindsight, it might look like PHE was created as a separate ‘company within a company’ as a way to make this sector of the Pioneer’s business easier to sell off if required.
So the business plan has changed – Funai and a licensing deal out, Baring Private Equity Asia and Onkyo in – but the effect is much the same. Pioneer will continue to exist in the home cinema market as a brand, but the products are going to be made by a different company, over which Pioneer Corp will have much reduced control.
The core effect is much the same: Pioneer can stop worrying about the paltry profits it’s been achieving in the consumer AV market, and concentrate its attention on the much more lucrative OEM and aftermarket automotive products arena.
Pioneer is no stranger to sending shockwaves through the AV community, but the move it’s contemplating could be every bit as big as its dropping of the Kuro TV line-up five years ago.
Hit by the trend toward downloaded and streamed movies and TV, plus the seemingly unstoppable rise of the all-in-one TV soundbar, the company looks set to offload its AV equipment business, with the idea that the buyer which would continue to make Pioneer receivers and systems under license.
That’s going to give some home cinema enthusiasts some serious shudders, and have rivals looking nervous: Pioneer’s receivers are highly regarded, and projects such as its tuning agreement with London based AIR Studios have boosted the appeal of its upmarket models.
But while its Blu-ray players, receivers and systems generated ¥108bn (£632m/$1.04bn) of sales in the 2012-13 financial year, accounting for some 20% of its business, they only contributed ¥100m (£585,000/$984,000) of operating profit.
Recovering from Kuro
And as Pioneer attempts to turn itself around from the low point of six years ago, when it shed 10,000 jobs and announced the end of its Kuro high-end plasma TV project, it needs to focus on products with higher margins, such as its car equipment and DJ products.
Japan’s Nikkei Asian Review reports that Pioneer is in talks with Funai Electric, which makes Philips TVs for the North America market and was set to take on the Philips consumer electronics business last year until talks were broken off. Funai is said to be one of several potential buyers for the AV business.
It’s thought the aim is conclude any deal by July – which looks likely to make the 2014 VSX receiver range, due in shops next month and the recently-announced entry-level BDP-170 Blu-ray player (below), the last Pioneer-made AV products.
For a company such as Funai, which has strengths in low-cost manufacturing and a substantial production base in China, the addition of the Pioneer brand would be a welcome image-boost. At the moment it specialises in the manufacture of products such for big retailing names such as US-based Wal-Mart, through which it sells huge quantities of products, especially during the Back Friday sales period following the Thanksgiving holiday.
It also manufactures products for the likes of Denon, Sharp and Toshiba.
Pioneer’s move is part of a plan to boost profitability and ensure its recovery: in the 2012-13 financial year it made a pre-tax profit of just ¥5.1bn (£30m/$50m) on sales of ¥498.1bn (£2.9bn/$4.9bn). The car equipment business – including entertainment, communication and navigation systems – accounts for 70% of sales, and is seen as the company’s future as the worldwide car industry recovers and expands.
Written by Andrew Everard