State fund eyes triple white goods alliance comprising Hitachi, Toshiba, Sharp

Kyodo, Bloomberg

A government-backed fund is considering asking Hitachi Ltd. to join the envisaged alliance of white goods businesses currently possessed by scandal-hit Toshiba Corp. and struggling Sharp Corp., sources said.

The participation of industrial conglomerate Hitachi would create a major player in the white goods business with combined sales of ¥1.2 trillion on a par with Panasonic Corp.

The plan being floated by the Innovation Network Corporation of Japan would help the alliance boost investment in new technologies being promoted under the concept of the “Internet of Things,” which refers to a push to network various kinds of devices, and compete with rivals in China and South Korea.

Hitachi is expected to examine the plan if it is officially presented by the fund, the sources said.

But the details of how to form such a multiparty alliance still need to be worked out.

One option is for INCJ to acquire Toshiba’s white goods business and integrate it with that of Sharp, the sources said. Under another plan, each company will transfer its own home appliance unit to a new entity to be created by INCJ.

The public-private fund is expected to decide on a framework to integrate the Toshiba and Sharp white goods units by the end of March, the sources said Thursday.

For the business year ended last March, Hitachi’s white goods unit reported ¥662.8 billion in sales, while Toshiba’s logged ¥225.4 billion and Sharp’s unit ¥315 billion.

Toshiba is reeling from an accounting scandal that led to a spate of downward revisions to financial statements totaling ¥224.8 billion on a pretax basis for nearly seven years.

Sharp is trying to get back on its feet as its liquid crystal display business continues to bleed money. INCJ is considering spinning off the LCD unit and integrating it with Japan Display Inc., a maker of small and midsize LCD panels in which the fund owns a stake.

Toshiba meanwhile is also exploring the idea of merging its personal computer business with those of Fujitsu Ltd. and Vaio Corp., a spinoff from Sony Corp.

As for Sharp’s entire business, sources familiar with the matter said Friday that the company and its creditor banks are moving toward accepting a rehabilitation scheme drafted by INCJ that includes financial assistance worth around ¥300 billion.

The proposed scheme represents another government-led rescue, boosting the likelihood of further consolidation taking place in the domestic electronics industry.

A basic agreement could be reached at the end of January before it is made final by the end of March, the sources said.

Under the plan, INCJ would first take ownership of Sharp by obtaining a majority stake in the electronics maker through a third-party share allocation and other means, the sources added. That would include revamping Sharp’s management team, including President Kozo Takahashi, and restructuring its unprofitable businesses, the sources said.

Taiwan’s Foxconn Technology Group has raised its offer for Sharp to about ¥600 billion, but its main lenders, Mizuho Bank and the Bank of Tokyo-Mitsubishi UFJ, are believed to be opting for INCJ’s assistance in a bid to keep Sharp’s technology in Japan.

Sharp’s interest-bearing debt of around ¥760 billion as of the end of last September has put a strain on management, raising the need for the Osaka-based firm to improve its financial health.

Around ¥150 billion of debt will be transferred to a new LCD company to be created under INCJ’s plan, and will be converted to preferred shares through a debt-for-equity swap, the sources said.

The public-private fund could ask the major banks to extend additional financial assistance to Sharp, according to the sources.