Revised cooperation agreement, TCL acquires Sony TV business, latest progress

On May 11, TCL Electronics Holdings Co., Ltd. announced that it had signed a revised agreement with Sony on the previously reached strategic cooperation transaction framework agreement in the field of home entertainment. The two parties agreed to set a cap on the total put price of all three batches of put options held by Sony. The maximum amount shall not exceed 100 billion yen, approximately HK$4.9 billion, under any circumstances.

According to the announcement, setting a total exercise price cap is a common practice in joint ventures, aiming to determine the maximum amount that TTE Corporation, a wholly-owned subsidiary of TCL Electronics, must pay based on the Sony put option, thereby minimizing financial exposure and ensuring the stability of cash flow.

In order to cope with unforeseen circumstances and ensure Sony's reasonable returns, T.C.L. Industrial (Hong Kong), the direct controlling shareholder of TCL Electronics, issued a payment letter to Sony. It promises that if the put price exceeds the total upper limit of 100 billion yen, the excess will be paid directly to Sony by T.C.L. Industrial (Hong Kong) to make up the difference. TCL Electronics Group does not need to repay the controlling shareholder in this regard, nor does it need to provide guarantee with any assets.

In terms of valuation and consideration, the announcement disclosed that this transaction referred to the financial information for the fiscal year ending March 31, 2025, and comprehensively considered the lack of market liquidity discount and other factors, and finally set the EV and EBITDA multiples of the home entertainment business at approximately 4.7 times. Based on the expanded share capital and related valuations, the transaction consideration is approximately 75.399 billion yen, which is equivalent to approximately HK$3.687 billion based on the exchange rate at the time of the announcement.

On March 31 this year, TCL Electronics announced the establishment of a joint venture with Sony for approximately HK$3.78 billion in cash and the acquisition of Sony's Malaysian subsidiary SOEM to undertake Sony's home entertainment business, which mainly focuses on the development, manufacturing and sales of television products. According to the agreement, TCL Electronics will hold 51% of the shares of the new company and Sony will hold 49% of the shares.

Subsequently, Sony will transfer its sales, marketing, distribution and service functions related to the home entertainment business and related headquarters functions to the new company. Enter into a patent and proprietary technology licensing agreement and a brand licensing agreement with the new company so that it can release authorized products globally and use the SONY trademark on authorized products and related marketing materials worldwide. (Source: Compiled by TrendForce Display)

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