Panasonic Ponying up to Buy Sanyo

By Mike Caggeso
Associate Editor
Money Morning

Panasonic Corp. (PC) and Sanyo Electric Co., Ltd. (OTC:SANYY) are hashing out a buyout plan that – if approved by shareholders and regulators – would cement Panasonic’s status as a global electronics leader.

Board members of each company are sitting down with the plan to roll Sanyo into a Panasonic subsidiary. And included in that plan is shedding dead weight from Sanyo, which – despite a wide swath of products – has been struggling to gain traction on the innovation front while facing the global financial headwinds.

One analyst believes the acquisition could cost Panasonic $8.8 billion, which may be a high figure, considering Sanyo’s home appliances and microchips have been losing money, Reuters reported.

That opens the possibility of selectively buying certain Sanyo businesses, or buying the whole thing and lopping off the weakest links.

“Strategically (the deal) makes sense, though it doesn’t necessarily make sense for Panasonic to take on every single bit of Sanyo Electric,” Hannah Cunliffe, fund manager at Germany's Union Investment, told Reuters. “There has to be some relatively aggressive restructuring.”

These brands, Sanyo especially, are much more than its consumer retail arm – high-definition TVs and DVD players. Sanyo is one of the world’s biggest suppliers of rechargeable batteries for cell phone, computers, MP3 players and cars.

It’s also the world’s seventh-largest solar cell maker, Reuters reported.

Absorbing Sanyo’s industry-covering product line would likely be cheaper for Panasonic than pouring more resources into its own slowing division.

Keeping Cylinders Running

The global financial rout has severely blunted retail electronics sales, despite wide acceptance that this is a promising growth industry.

The fact is that domestic and corporate budgets have been slashed, and the extra coin that’d normally buy new high-tech gadgets is instead being used for more basic needs.

Like the banking industry, this demand crunch is putting small- to mid-sized electronics manufactures in an extremely tough position. Sanyo’s wide range of products could buoy the company, but only if it had the size and capital to keep its businesses running.

Panasonic – on the other hand – desperately needs to expand its product line and is sitting on a $10 billion cash reserve. 

CEOs for both didn’t mince words about their intentions at an Osaka press conference, as reported by the Wall Street Journal.

Seiichiro Sano, chief executive at Sanyo: “After the financial crisis that hit in September, I felt the need to come up with specific solutions, and quickly.”

Fumio Otsubo, chief exective of Panasonic: “The economic outlook is very unforgiving, and it’s becoming difficult to grow profits.”

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