Panasonic eyes Sanyo, bets on solar power

TOKYO, JAPAN: Panasonic Corp, the world's top plasma TV maker, is betting on a green future of solar power and hybrid cars as it negotiates a price for rival Sanyo Electric Co that analysts say could be up to $8.7 billion.

A key driver for Panasonic is Sanyo's auto batteries business that powers increasingly popular hybrid and electric vehicles, but it would also secure a foothold in the solar cell industry, another with strong growth potential amid concern about global climate change.

Sanyo is the world's seventh-largest solar cell maker and competes with bigger rivals such as Germany's Q-Cells.

"This isn't a bad combination," said Mizuho Investors Securities analyst Nobuo Kurahashi. "Sony doesn't make auto batteries, at least not yet. When hybrid and electric vehicle demand takes off, Panasonic and Sanyo will be far ahead of everyone else."

Panasonic runs a car battery venture with Toyota Motor Corp, while Sanyo offers nickel metal hydride batteries to Ford Motor Co and Honda Motor Co Ltd and develops lithium-ion batteries for cars with Volkswagen AG.

Panasonic has around $10 billion in cash and cash equivalent, some of which could be used to build a large-scale solar plant, which would be needed to make cost competitive solar panels.

In addition, Sanyo is the top supplier of rechargeable batteries that are used in cellphones, laptops and MP3 players, ahead of rivals such as Sony Corp and Panasonic.

A Panasonic/Sanyo combination would create Japan's largest electronics maker by revenues, overtaking Hitachi Ltd.

"The deal ... could propel the two firms to become the comprehensive electronics maker of Japan that can rival some of the major electronics makers overseas," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.

Reuters and other media reported on Saturday that Panasonic, formerly Matsushita, was in talks with Sanyo's top three shareholders, Daiwa Securities SMBC, Sumitomo Mitsui Banking Co and Goldman Sachs, to take control of Sanyo.

Sources familiar with the discussions told Reuters that Panasonic President Fumio Ohtsubo and Sanyo President Seiichiro Sano agreed in principle to Sanyo becoming part of Panasonic, but no price had been set.

Still some unknowns

Shares in Panasonic rose 6.8 percent on Tuesday, while Sanyo rose by its daily limit of 50 yen, or 34.5 percent, to 195 yen. The Nikkei average gained 6.3 percent.

But analysts remained wary.

"We don't know exactly how much they're going to pay, and they still have to cut non-performing businesses -- consumer electronics, appliances and semiconductors," said one brokerage analyst, who declined to be named because he was not authorised to speak to the media.

Credit Suisse analyst Koya Tabata reckoned Panasonic could offer up to 140 yen per Sanyo share, a premium of up to 40 percent to Sanyo's enterprise value -- valuing all of Sanyo at 862 billion yen ($8.72 billion).

Panasonic says nothing has been decided on a Sanyo purchase, but the Nikkei business daily reported a deal could be announced by Friday.

Sanyo issued 300 billion yen in preferred shares, each of which can be exchanged for 10 common shares, to the three financial institutions in 2006 to help it restructure after a sharp downturn in earnings.

Restrictions on converting and selling the stock will be lifted in March, giving the three main shareholders a possible exit on their investment. If converted, the holdings would give the three a stake of about 70 percent in Sanyo.

Assuming the dilution in per-share value is factored in, Sanyo's market value is around 1.2 trillion yen, based on Tuesday's close, but analysts noted investors were unlikely to have factored this in as that value far exceeds that of Sharp Corp, its bigger and more profitable domestic rival.

Daiwa Securities SMBC is a joint venture between Daiwa Securities Group and Sumitomo Mitsui Financial Group (SMFG), while Sumitomo Mitsui Banking Corp is Sanyo's main bank and part of SMFG.