Tatung swaps PC unit for stake in Elitegroup

Tatung Co (大同), the nation's leading home appliance maker, announced yesterday that it will swap its desktop computer business unit for a 30 percent stake in motherboard maker Elitegroup Computer System Co (精英電腦).

The deal, which is to be completed by Jan. 1, will make Tatung the largest shareholder in Elitegroup, Chang I-hua (張益華), Tatung's secretary-general, said at a press conference at the Taiwan Stock Exchange yesterday.

"The synergies make this a good deal for Tatung. It is time for the company to get out from under this heavy burden," said Simon Yang (楊勝帆), an analyst with Topology Research Institute (拓墣產業研究所).

According to Yang, Tatung's move is similar to IBM Corp's sale of its PC unit to Lenovo Group Ltd (聯想), China's largest PC vendor.

Tatung has to get rid of the low-margin desktop business as the unit does not earn much money and the company lacks the capacity for desktop mass production, he said.

As Tatung has been focused on the computers, communications and consumer electronics (3C) sector for a long time, including digital TVs and consumer electronics, it now intends to use all its resources in this area in a bid to outdo rivals such as BenQ Corp (明基), Yang said.

This will boost Tatung's competitiveness in the 3C industry, which will eventually boost its margins, he added.

Elitegroup spokesman Tsai Chia-hung (蔡佳宏) said the partnership is a complementary strategic alliance.

The two companies will benefit from the integration of resources, including global logistics, design, sales, component manufacturing and system assembly, Tsai said.

According to Chang, the deal is expected to enable Tatung to concentrate on the 3C business unit, which is the firm's largest revenue contributor.

He refused to give out the exact figures.

The desktop PC unit has net assets valued at NT$6.7 billion (US$202 million) and mainly engages in original equipment and design manufacturing businesses for US clients. After Tatung hands the unit to Elitegroup, it will continue to market the desktop PCs from Elitegroup under its brandname locally next year, he said.

Elitegroup will give Tatung a 30 percent stake in the firm through the release of 314 million new shares, making Tatung its biggest shareholder, with five seats on its board, which is a "comparative majority," Chang said.

The desktop unit brought in NT$50 billion in revenues last year for Tatung.

The new deal is expected to bring in 20 percent to 30 percent more revenues for both firms after the partnership effect kicks in during second quarter of next year, he added.

Yesterday's deal was announced after the local stock market closed. Shares of Tatung rose 4.28 perent to NT$9.5, while Elitegroup rose 6.96 percent limit-up to NT$26.9 on the Taiwan Stock Exchange.