Sanyo set to accept Panasonic takeover

Sanyo Electric, one of Japan’s largest electronics companies, will on Friday announce that it has agreed in principle to a takeover by rival Panasonic.

It will make the announcement following a full meeting of the company’s board in Osaka, according to sources close to the deal.

Panasonic will then begin due diligence and commence formal negotiations with the three preferred shareholders whose equity converts to almost 70 per cent of Sanyo’s ordinary shares. There has not yet been any agreement on price, however, and the deal could still fall apart on those grounds.

Sanyo’s agreement brings closer a takeover that would create Japan’s largest electronics company with combined sales of Y11,000bn ($112bn). The deal would increase pressure for further consolidation of the country’s fragmented consumer electronics sector.

Sanyo sold the Y300bn of preference shares to Daiwa Securities SMBC, Sumitomo Mitsui Bank and an affiliate of Goldman Sachs in 2006 after suffering heavy losses. To buy Sanyo, Panasonic only needs to persuade those shareholders, who would be able to book profits at a time when the markets are falling.

The terms on which Panasonic would acquire the listed ordinary shares also has to be decided. According to one lawyer, if Panasonic buys all of the preference shares it will almost certainly need to make an offer for the ordinary equity, but not necessarily at an equivalent price.

There will be heavy pressure on Panasonic, and especially on the Sanyo board, to avoid a corporate governance row through a public bid that offers both preference and ordinary shareholders the same terms.

The potential deal has been widely welcomed by analysts and Sanyo Electric customers. “Sanyo is strong in batteries, including the lithium-ion type. If the companies get together it will make an even stronger business,” Mitsuo Kinoshita, executive vice-president of Toyota, said on Thursday.

Hybrid electric cars such as Toyota’s Prius use nickel-metal hydride batteries, but all electric cars and future hybrids will use lithium ion.

Another attraction is Sanyo’s fast-growing business in solar power cells, an area where Panasonic has no presence. Panasonic declined to comment.

On Tuesday, Sanyo announced a 2.5 per cent rise in first-half sales to Y1,007bn, and first-half operating profit well above its own forecast at Y24bn.

Additional reporting by Jonathan Soble