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Sweden-based appliance maker Electrolux has signed an agreement for divestment of its Indian appliance operation, including all three production facilities to Videocon, one of India's largest appliance and consumer electronics maker.
The agreement grants Videocon the right to use the Electrolux brand in India for 5 years, as well as a license to use the Kelvinator brand in India and selected markets for an unlimited time.
Electrolux said the license agreement will include strict criteria regarding design, quality, product offering, and market communication for the Electrolux brand. The Swedish appliance maker will have a branch office in New Delhi for implementation of the license agreement as well as for purchasing.
"Although the operation in India showed substantially improved profitability in 2004 and 2005, it would take time to achieve an appropriate level of profitability with its present structure," said Johan Bygge, head of Electrolux Major Appliances Europe and Asia/Pacific. "We are now changing over to a distribution agreement with Videocon, the leading company in consumer electronics and appliances in the Indian market. The Electrolux brand will thus maintain its presence in the Indian market and will benefit from Videocon's extensive distribution network."
For Electrolux, the agreement will involve a maximum cost of SEK 600 million (approx. U.S. $75.9 million), which will be taken in the third quarter of 2005. The effect on Electrolux's cash flow is expected to be approximately SEK 350 million (approx. $44.2 million). As part of the agreement, Electrolux will become owner of approximately 5 percent of the shares in Videocon Industries Ltd.
Electrolux said the transfer of the operation to Videocon will be effective immediately.
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