TOKYO, June 23 (Reuters) - Struggling consumer electronics maker JVC
will likely merge with audio equipment maker Kenwood Corp. under a
joint holding company as early as 2008, sources close to the matter
said on Saturday.

Matsushita, the world's largest consumer electronics maker holding
52.4 percent stake in JVC, is expected to sell its shares in the
Yokohama-based firm to the holding company, taking the lossing-making
JVC off its consolidated accounts, they said.

Panasonic maker Matsushita Electric Industrial Co. has been trying to
sell its JVC stake, worth about 52.6 billion yen ($425 million),
because its persistent losses have been weighing on its group-based
earnings performance.

Under the preliminary integration plan, Kenwood will first buy 20
billion yen worth of new JVC shares through a third-party allocation,
taking a stake of about 13 percent.

Then, JVC and Kenwood, a maker of audio equipment and car
electronics, will set up a holding company as early as 2008, under
which two firms will merge their operations.

They aim to reach the final agreement by the end of July, the sources
said.

The Nikkei business daily said on Saturday Sparx Asset Management, an
investment firm that holds Kenwood shares, is also expected to buy
part of the JVC shares Matsushita owns, after the third-party
allotment but before the establishment of the holding company.

Spokesmen at Matsushita, JVC and Kenwood said nothing has been
decided.

Matsushita chose U.S. private equity firm Texas Pacific Group as its
preferred bidder for its JVC stake back in March.

But the talks fell through this month after banks had resisted
funding the acquisition because they were unconvinced that TPG could
turn around a company heading for its fourth straight annual loss.

Matsushita also turned sour on the deal with TPG because TPG lowered
its offer price after JVC's earnings announcement in April when its
loss turned out to be larger than previously forecast, sources have
said.

Although JVC enjoys brisk demand for hard disk drive-equipped
camcorders, its rear-projection television sales have been hit by
sharp falls in plasma TV prices.

It is also struggling to compete with industry titans such as Sony
Corp. and Samsung Electronics Co. Ltd. in the liquid crystal display (LCD) TV 
market. ($1=123.86 Yen)

Don't worry about what people think; they don't do it very often.

Steve, K8SP