Matsushita Electric Industrial Co, maker of the Panasonic range of consumer electronics and the world''s largest consumer electronics firm, holds a 52.4-per cent stake in JVC, worth about ¥52.6 billion ($425 million). Matsushita, is expected to sell its shares in the Yokohama-based firm to the holding company, taking the loss-making JVC off its consolidated accounts, reports said. The company has been trying to sell its stake in JVC as its persistent losses have started weighing on 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 per cent.

JVC will set up a holding company jointly with Kenwood - a maker of audio equipment and car electronics - by 2008, under which two firms will merge their operations.

Financial closure is expected by the end of July, the reports said.

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

Matsushita turned to Kenwood after talks with the Texas Pacific Group fell through 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, JVC and Kenwood said nothing has been decided.

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.