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Funai Forecast Revised On Losses from Failed Acquisition of Philips CE Business
Mar 20, 2014
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Consumer electronics maker Funai, based in Osaka, Japan, revised downward its forecast fiscal-year operating income as a result of losses from Philips brand products. Philips had planned to sell its consumer electronics business—selling TVs and audio accessories—to Funai, but scrapped the deal in mid-2013. The two companies have each filed lawsuits against the other claiming damages for the failed transfer.

For the fiscal year ending March 31, 2014, Funai expects net sales to be 230,000 million yen, virtually unchanged from its November forecast of 229,000 million yen. Operating income, however, is forecast to be a loss of 5100 million yen, compared to the previous forecast of an income of 500 million yen.

Sales were outpacing previous forecasts, Funai said, but income was affected by losses in North America and Mexico from Philips-brand products, starting in the third quarter of the fiscal year.

In the fourth quarter, Funai reported, performance was being affected by the expenses arising from liquidating inventories. These factors were expected to have a substantial downward impact on profitability

In January 2013, Funai and Philips agreed that Philips would transfer its audio-video business to Funai. In October 2013, Philips said it was terminating that agreement after, it said, Funai "refused to take the necessary steps to enable completion of the transaction and the transfer of the business."

Funai filed a counterclaim (compensation for damages) against Philips in December, saying Philips was unable to complete the spin-off of the business in a timely manner, despite two postponements of the transaction completion date.

Funai also said that the business that Philips intended to sell to Funai "differed markedly from what Philips explained to Funai," and that its profitability had been notably declining in 2013.

In a press release, Funai said it was continuing with negotiations to complete the transaction "based on its good business relationship of mutual trust with Philips for over 25 years," until Philips broke off negotiations and filed a petition for arbitration with the International Court of Arbitration on October 25, 2013.

Per Funai, these and other actions mean that Philips is in breach of its agreement with Funai.

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