To revive the declining smartphone business, South Korea’s LG Electronics Inc. on Thursday announced plans to raise about $945 million in a stock offering. As a result, the company's shares plunged 14 percent on concerns that selling new shares would dilute shareholder value, reported Reuters, the international multimedia news agency. As per the Reuters report, LG shares have already dropped more than 40 percent so far this year.
“The share decline on Thursday was the biggest daily fall in more than three years and lopped off around $1 billion from the company's market value,” wrote Reuters reporters Jungyoun Park and Hyunjoo Jin.
The report quoted Oh Dong-ge, a senior fund manager at Daishin Asset Management, which owns LG shares, as saying, "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."
"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," Dong-ge told Park and Jin.
A year ago, to save the declining handset business, Koo Bon-joon, the younger brother of the LG Group chairman and a member of its founding family, took control of LG Electronics as chief executive officer.
According to Park and Jin, LG's handset business has reported nearly 1 trillion won in losses over the last six consecutive quarters, as it failed to introduce competitive models to challenge Apple’s iPhones and Samsung’s Galaxy smartphones.
In a statement, LG said, "The rights offering is aimed at securing ample resources required to improve competitiveness of our core businesses... We'll continue to invest in our core businesses including smartphones, to regain our initiative."
Park and Jin wrote, “The world's No.2 TV maker and third-biggest handset vendor said that it would place new shares worth 1.06 trillion Korean won ($945 million) to existing shareholders at 55,900 won each. That represents a 9.3 percent discount to Thursday's closing price, as per the report.Ashok Bindra is a veteran writer and editor with more than 25 years of editorial experience covering RF/wireless technologies, semiconductors and power electronics. To read more of his articles, please visit his columnist page.
Edited by Rich Steeves