Panasonic to Enter Talks to Buy Sanyo
Japan’s Panasonic Corp. will enter talks to buy rival Sanyo Electric Co., the two companies announced Friday, in a deal precipitated by the global economic turmoil.
Sanyo, a world leader in fast-growing businesses like solar power and batteries for electronics and cars, said financing the huge investments needed to expand production had become increasingly precarious. Meanwhile, Panasonic said it is looking for new engines of growth as it braces for a tough economic climate and sluggish demand in Japan, its main market.
The deal would also allow Goldman Sachs Group Inc., one of Sanyo’s biggest shareholders, to offload a key investment in Japan and bolster its balance sheet. Goldman and Japanese financial companies Sumitomo Mitsui Banking Corp. and Daiwa Securities SMBC Co. together acquired Â¥300 billion in preferred shares in 2006.
“After the financial crisis that hit in September, I felt the need to come up with specific solutions, and quickly,” Seiichiro Sano, chief executive at Sanyo, told a joint press conference in Osaka.
“The economic outlook is very unforgiving, and it’s becoming difficult to grow profits,” Panasonic Chief Executive Fumio Otsubo said. “We desperately need another engine of growth,” he said.
In the fiscal year ended March 31, the two companies posted combined sales of about ¥11 trillion, or about $110 billion.
An agreement on price could be tricky, however, given recent volatility in the value of Sanyo’s shares. Sanyo’s share price, which had recently slumped amid a world-wide market sell-off, has risen almost 40% this week on news of the proposed merger. It fell 0.5% to Â¥203 prior to Friday’s announcement. Panasonic closed down 3.8% at Â¥1,528.
Panasonic didn’t say how much it plans to offer for each Sanyo share. But Credit Suisse analyst Koya Tabata told clients earlier this week that Panasonic could offer up to Â¥140 per Sanyo share, a premium of about 40% to Sanyo’s market value last week, though prices have since risen. That would value a deal for the whole of Sanyo at up to Â¥862 billion.
The deal could bring benefits by matching Sanyo’s batteries and solar power technology to Panasonic’s ample funds. But Sanyo’s less competitive businesses, including chips, consumer electronics and home appliances, could weigh on Panasonic’s profitability, analysts say.
The merger could also help shake up Japan’s crowded electronics industry. About a dozen electronics firms are locked in fierce competition in Japan, from giants like Hitachi, Ltd., Panasonic and Sony Corp. to smaller companies like Sanyo.
The discussions bring together two companies with close historical ties. Toshio Iue, who founded Sanyo in 1947, is the brother-in-law of Panasonic founder Konosuke Matsushita. Mr. Iue was heavily involved in growing Matsushita Electric Industrial Co., Panasonic’s forerunner, before founding Sanyo.
Source: WSJ