October 17, 2007 – Days after reportedly picking a winning bidder for its semiconductor business auction, Sanyo Electric Co. has changed its mind and will keep the unit after all, blaming difficulties by its suitor to raise money from investors due to the US subprime mortgage woes.
Back in April Sanyo said it would shed its lossmaking semiconductor business, which posted sales of 166.5B yen ($1.17B) in the fiscal year ended in March, roughly 11% of the company’s sales. Profitability has suffered due to soft demand and falling prices of digital goods, as well as a major earthquake in Oct. 2004 that damaged the company’s facility in Niigata Prefecture and left customers seeking new partners.
Late last month private equity firm Advantage Partners LLP reportedly threw down an 11th hour, 120-130B yen bid for the chipmaking operations, beating out a 110B yen proposal from Longreach Group. The auction reportedly involving up to six potential suitors had been expected to fetch up to 100 billion yen ($860M), though lower than the company’s initial hopes of 150-200B yen ($1.3-$1.7B).
Today, though, the company says it will retain the business “as a key operation in its component and device division” of its parent group, with specific plans for expanding and developing the business to be laid out in a forthcoming mid-term management plan.
The main reason for the change of heart? Advantage Partners’ inability to raise cash from funds that it manages, and domestic and foreign financial institutions wary of the subprime debacle have become more focused on risk management and reluctant to extend loans, claims the Nikkei daily. Citigroup, for example, was cautious about taking on a new obligation to syndicate any loans and said it would underwrite the Sanyo deal only on a “best efforts basis,” noted Reuters, citing unidentified sources. Both Citigroup and Merrill Lynch, another proposed lender in the deal, have been burned by the credit crisis — Citigroup’s 3Q profits are down by >50%, while Merrill is writing down $5.5B in bad investments.