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November 17, 2008

Panasonic Seeks Sanyo’s Green-Energy Products

While Panasonic's intent to acquire Sanyo Electric would make the combined company the No. 2 electronics supplier, alternative energy is actually the driving force behind the plan. 

Panasonic, which changed its name from Matsushita Electric Industrial Co. last month, recently announced that it would negotiate a buyout with Sanyo's main stockholders -- Goldman Sachs Inc., Daiwa Securities SMBC and Sumitomo Mitsui Banking Co.  According to analysts, the deal is expected to be worth $5 billion to $8.5 billion.

The acquisition is being driven Panasonic's interest in Sanyo's two green-energy businesses: solar cell technology and rechargeable batteries.

"We need another engine for growth," Panasonic President Fumio Ohtsubo told the Associated Press, adding that falling electronics prices were chipping away at profits.

"We need another pillar for far greater growth. And Sanyo was that best partner."

Panasonic is currently without a solar panel business, while rival Sanyo's solar panels are being used to generate electricity for businesses and homes, and are expected to see higher demand amid climate change concerns.

The company also leads the industry in rechargeable batteries used in mobile phones and laptop computers, and expected to expand to cars as emissions standards tighten.  Although Panasonic currently supplies batteries for vehicles produced by Toyota Motor Corp., acquiring Sanyo would be critical since it supplies batteries for Honda Motor Co., Volkswagen AG, and Ford Motor Co.

Roughly 50 percent of Sanyo's revenue during the first half of fiscal year 2008 was generated from components, which includes semiconductors, rechargeable batteries and solar technologies.  However, the sector brought in nearly 94 percent of the company's operating profit.  Meanwhile, Sanyo lost money in its consumer electronics division.

Credit Suisse analyst Koya Tabata warns that green business is a long-term investment, but nevertheless views the Sanyo acquisition as a net positive for Panasonic.   The deal would be the latest event in a long-standing realignment of Japan's electronics industry, which began in the 1990s as Japanese electronics firm began being challenged by low-cost rivals. Japanese companies have sought to expand their scale in response to these competitive threats.

For instance, Panasonic has a partnership in liquid crystal displays for TVs with Hitachi Ltd. and Canon Inc., which competes with another Japanese TV panel alliance that includes Toshiba Corp., Sony Corp., and Sharp Corp.

However, Panasonic's track record with acquisitions has been less than stellar.  The Sanyo deal would be a big test for Panasonic, in part due to its lofty ambitions to make the company a global leader.

Panasonic sank into the red and eventually abandoned the Hollywood movie studio MCA, which it acquired in 1990 for $6 billion. Its 50-year ownership of Victor Co. of Japan produced results in early years and positioned Panasonic ahead of rival Sony Corp. in the VHS vs. Betamax video-format battle.  However, the partnership later diminished and the companies were unable leverage each other's strengths.  Last month, Victor partnered with Kenwood Corp.

Some analysts believe Panasonic's acquisition of Sanyo would progress more smoothly since the companies share similar corporate cultures. Indeed, Sanyo was founded by the brother-in-law of Panasonic founder Konosuke Matsushita.   And both firms are based in Osaka, Japan.

However, for now, it is not yet clear what consumers might see from the combined company. Ohtsubo has said he wants to maintain both companies' brands, at least for a while.  That could mean that consumers would likely find products with different prices and brand labels, but with nearly identical components.  However, over time, the Sanyo brand would likely fade.  The company is currently losing money in electronics, while generating revenue in its battery and solar businesses, something that could ultimately be Sanyo's lasting legacy.

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Image Caption: SANYO's Solar Ark "“ The world's largest solar power generator with over 5000 PV solar panels.

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