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May 22, 2007 10:55 pm

Shortlist drawn up for Sanyo chip unit sale

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Cerberus, Blackstone Group and Longreach appear on a shortlist to buy Sanyo’s semiconductor operations - a deal that may fetch Y150bn-Y200bn ($1.2bn- $1.6bn), people familiar with the matter say.

The companies are involved in four groups short-listed from more than 32 interested parties. They are conducting due diligence on the semiconductor unit.

Other bid groups include: Francisco Partners, CCMP Capital Asia and MKS Partners; and Rohm, the Japanese chipmaker.

Sanyo, the consumer electronics group that recently saw its chairwoman and president resign in the space of a month, is expected to make a final decision about a bid by July.

But people close to the deal said the continuing investigation by Japan’s Securities and Exchange Surveillance Commission into possible accounting irregularities at Sanyo was a “major issue”. Bidders were going over the semiconductor’s numbers with a fine-toothed comb. The company has said it could restate historical earnings for a three-year period to March 2004.

Sanyo spun off its chip unit last year after a series of losses. This year, the unit is expected to report an operating profit of Y7bn after a loss last year of Y35bn.

A possible exit strategy for a private equity firm would be an initial public offering of the semiconductor unit.

The operating margin for Sanyo’s chip-making arm is expected to be 3 per cent this year. Interested parties think it possible to increase margins to double digits by quitting unprofitable units, such as LCD drivers, rationalising the workforce and optimising supply chain efficiency. “Sanyo is exploring all possibilities to develop the business,” the company said on Tuesday. It declined further comment

Sanyo is to report a loss of Y50bn in the fiscal year ending March 31, after net losses of more than Y100bn annually for fiscal 2004 and 2005.

Restructuring by its largest shareholders – Sumitomo Mitsui Bank, Goldman and Daiwa SMBC – is under way. The three control about 60 per cent of voting rights after investing Y300bn.

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