JVC, Kenwood to merge under holding company

But the new entity would still fall far behind some of its rivals in size as combined sales of the two companies totaled 823.7 billion yen ($8 billion) in the year ended March 31, or less than one-tenth of Panasonic maker Matsushita's (6752.T) 9 trillion yen.

Kenwood offers car electronics and audio equipment, while JVC is a medium-sized consumer electronics maker with strength in camcorders equipped with hard disk drives.

The announcement came as little surprise because sources close to the matter said last week Victor Co of Japan Ltd (JVC) and Kenwood had agreed to integrate their businesses in October.

Kenwood and asset manager Sparx Group 8739.Q acquired a combined 30 percent stake in loss-making JVC for 35 billion yen last year, and Kenwood and JVC have been in talks with eyes on merging their operations under a holding company.

JVC and Kenwood aim to bring the holding company's operating profit to 39 billion yen in the year ending March 2011, up from a combined profit between the two companies of 9.6 billion yen in the business year ended March 31, by cutting costs through joint development and joint procurement of parts and materials.

Each JVC share will be exchanged for two shares in the holding company, JVC Kenwood Holdings Inc, while one share in the new entity will be allotted for each Kenwood share.

Kenwood Chairman Haruo Kawahara will become chairman of the holding company, while JVC President Kunihiko Sato will become president of the new organization.

Shares in JVC, 36.8 percent owned by Matsushita Electric Industrial Co, closed up 7.6 percent at 285 yen ahead of the announcement, while Kenwood rose 3.1 percent to 133 yen, outperforming the Nikkei average's .N225 0.6 percent gain.

(Reporting by Kiyoshi Takenaka, editing by Elizabeth Fullerton)