Price is right: Panasonic takes Sanyo gold

Dec. 22, 2008 – In the end, all it took was an extra greenback to tip the scales for Panasonic’s pursuit of Sanyo.

After rebuffs from a key Sanyo shareholder for what were thought as lowball offers (first ¥120/share, then ¥130/share), Panasonic apparently now has a green light from all three top shareholders with a gently sweetened ¥131/share offer — which was actually below Sanyo’s share price as of Saturday (¥136/share). All three top Sanyo stakeholders — Sumitomo Mitsui Banking, Daiwa Securities, and now Goldman Sachs — apparently have accepted the new bid. The Nikkei daily noted that Goldman Sachs apparently didn’t need much to tip its opinion in favor of selling its stake, having been forced to reevaluate its opinion of Sanyo’s long-term viability as a solo enterprise given plunging earnings for electronics firms — and the fact that Goldman itself posted a $2B quarterly loss over the weekend, the first since its 1999 IPO.

The preferred shares held by the three firms, equal to about 70% of the company’s ownership, will be converted to common stock in early 2009 for roughly ¥567B, and Panasonic is expected to push to convert Sanyo into a wholly owned subsidiary. The firm also is likely to sell about ¥400B worth of bonds to help finance the deal, and invest another ¥100B into Sanyo for capex and operations, reports the paper. After alignment, the firms expect to achieve about ¥40B in “synergy” at the operating-level profit from energy-related operations alone, plus another ¥40B for other operations, overlaps, and cost-cutting, reports the paper.

The Nikkei Veritas adds that Panasonic’s financial muscle helped push this deal through, with a >¥100B pipeline stuffed with planned investments including plants for plasma and LCD panels and lithium-ion batteries, plus additional projected investments for Sanyo’s battery technology. But the Nikkei daily notes that Panasonic has its work cut out to figure out how to restructure Sanyo’s money-losing operations in semiconductors and white goods, areas with some overlap between the two firms.

Meanwhile, three years after their initial investments, Goldman, Daiwa, and Sumitomo Mitsui will have achieved about a 23% annualized return on their initial investments (¥125B, ¥125B, and ¥50B, respectively), notes the Nikkei daily.

And while the two firms dig into strategies and “synergy” efforts, the move is likely to have a broader influence for electronics industry M&A, notes the Nikkei daily. Japanese production of electronic devices surged from ~¥11T in 1980 to ¥26T in 1990, but has since stalled back down to ¥20T, according to the paper, citing statistics from the Ministry of Economy, Trade and Industry (METI). Yet despite the slump, nine domestic firms are still battling one another: Panasonic, Sony, Sharp, and Sanyo in home electronics; Hitachi, Toshiba, and Mitsubishi Electric in electrical machinery; and NEC and Fujitsu in telecom equipment. For example, eight firms in Japan are fighting over a cell phone market with 50M units and most are swimming in red ink; meanwhile Nokia sells 400M units/year and has 12% margins, the paper notes. Other sectors are likely to see consolidation too — LCD TV sales will drop 16% in 2009, according to US firm DisplaySearch, while Gartner sees a -16.3% plunge in chip sales in 2009 following a -4.4% decline in 2008.


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