Panasonic, Sanyo start tieup talks

Deal would create Japan's No. 1 group in electronics

by Hiroko Nakata

Panasonic Corp. and struggling Sanyo Electric Co. announced Friday they will enter capital and business tieup talks to make Sanyo a subsidiary of the electronics giant to boost global competitiveness in green energy and electronics.

Combined, they would become the nation’s biggest electronics group, with ¥11.2 trillion in sales, topping Hitachi Ltd. group, which projects sales of ¥10.9 trillion for the fiscal year ending next March.

The two firms said they will announce the results of the talks by the end of December.

The two plan to collaborate on improving rechargeable lithium-ion battery technology and global sales networks for solar panel business.

They also plan to reduce production and development costs for electronics appliances and digital devices.

“To become a truly excellent global company, we needed one more growth engine,” Panasonic President Fumio Otsubo told reporters.

“Considering future growth, Sanyo has something very attractive and its businesses can create great synergies with Panasonic’s technology and business resources,” he said.

He stressed that the two companies will together have a large impact on consumers around the world in the field of environmental energy.

Sanyo President Seiichiro Sano said the recent financial crisis prompted the company to find a new shareholder because its preferred stocks can be converted to common stocks anytime after March. “Panasonic clearly meets our need” to join with a company that can help us survive global competition, he said.

Panasonic reportedly aims to acquire a majority of Sanyo’s 430 million preferred shares through a tender offer.

The preferred stocks were issued by Sanyo in 2006 to shore up its capital base and are now owned by three financial institutions — Sumitomo Mitsui Banking Corp., Daiwa Securities SMBC Co. and Goldman Sachs Group Inc. of the United States.

If the stocks are converted into common shares, they will account for about 70 percent of Sanyo’s outstanding shares.

Analysts, however, are cautious about whether Panasonic can finish reviewing Sanyo’s assets and set a tender offer price by the end of this year amid ongoing financial market volatility.

Sanyo has been struggling in the home appliance market and other electronics sectors amid fierce competition in the country’s crowded industry.

The firm also got caught up in an accounting scandal last year when falsified financial statements came to light, prompting the resignation of several top executives.

“Panasonic as a whole has been making efforts to streamline its business as much as possible. So the focus will be how much it can restructure (Sanyo’s) unprofitable sectors, such as its home appliances and semiconductors,” said Nobuo Kurahashi, electronics sector analyst at Mizuho Investors Securities.

“In the short term, I expect the buyout to weigh on the combined group’s profitability,” he said.

Analysts, however, say the alliance could strengthen Panasonic, given the potential of the rapidly expanding lithium-ion battery and solar-cell markets.

Sanyo is currently the world’s top producer of lithium-ion batteries and the seventh-largest maker of solar cells.

“In the longer term, the battery sector will enjoy the biggest synergy (from the buyout),” Kurahashi said.

Rechargeable lithium-ion batteries, now commonly used for laptop computers and mobile phones, are expected to have huge potential because automakers see them as key to transforming gasoline-electric hybrid vehicles and plug-in hybrids into more practical means of transportation.

Lithium-ion cells are more powerful than nickel-metal hydride cells, which are currently the major batteries for hybrid auto vehicles.

Sanyo and Germany’s Volkswagen AG agreed in May to develop lithium-ion batteries for hybrid vehicles. They plan to produce the cells for 15,000 to 20,000 hybrid units a year by the end of 2009.

Meanwhile, Panasonic formed Panasonic EV Energy Co. in 1996, a battery joint venture with Toyota Motor Corp. It plans to start mass production of lithium-ion cells in 2010.

Toyota on Thursday welcomed the expected alliance, one day before Panasonic and Sanyo’s official announcement.

“Sanyo is strong in the lithium-ion battery business. If Panasonic and Sanyo get together, the power (of the two firms) will be further strengthened. We want to make our own ties (with Panasonic) stronger,” Toyota Executive Vice President Mitsuo Kinoshita told reporters.

Competition in the lithium-ion battery market is intensifying. Mitsubishi Motors Corp. established a joint venture with Mitsubishi Corp. and battery-maker GS Yuasa Corp. last December to develop and make advanced lithium-ion batteries for electric cars that will debut next summer.