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Ken S 12-24-2012 08:52 AM

For Sale in Japan: Electronics Assets
 
Electronics Firms Look To Be Leaner

From The Wall Street Journal - Monday December 24, 2012

By DAISUKE WAKABAYASHI And KANA INAGAKI

TOKYO—Panasonic Corp. 6752.TO -1.38% said Friday it agreed to sell the digital-camera business it inherited in its 2009 acquisition of Sanyo Electric Co. to a Japanese private-equity firm. The deal is symbolic of how Japan's struggling consumer-electronics companies are setting aside years of resistance to get serious about shedding nonessential assets and streamlining their sprawl of operations.

But this newfound pragmatism, necessitated by a sobering reality of multibillion-dollar losses in recent years and strained finances, may be hindered by a mismatch of what they are willing to sell and what potential buyers want.

For these companies—Sony Corp., 6758.TO -1.63% Panasonic and Sharp Corp. 6753.TO -2.32% —it is a Catch-22 situation. The businesses that make the most sense to unload are uncompetitive, turning off potential buyers. But while selling businesses with more promising technology may draw in a bigger pool of potential buyers—both from the industry and private equity—that may leave the cupboard bare for a future turnaround.

Risky as that might be, some observers say some of the biggest names in Japan's corporate ranks may face no other choice.

"Company management should take a step back and calmly assess the possibility of various strategic alternatives of the business when it is still strong enough to compete globally and when it has a good momentum to generate profit, rather than waiting for five or 10 years until the business starts to underperform," said Masao Yoshikawa, head of the merger-and-acquisition group at Citigroup Inc. C -0.56% in Tokyo, which recently advised struggling Olympus Corp.'s 7733.TO -0.65% tie-up with Sony.

Potential deals involve businesses in highly competitive segments that would benefit from a shift to a low-cost manufacturing base, according to industry executives and investment bankers. The most-often cited examples are Sony's rechargeable-battery business and the television operations that Panasonic carried over from Sanyo. Facing a direr financial situation, Sharp is expected to sell a U.S.-based solar-project-development company that it bought two years ago.

Panasonic agreed Friday to sell the Sanyo camera business—which manufactures digital still and video cameras for other company brands—because a separate Panasonic unit already sells competing products under its own brand. The sale to Advantage Partners LLP is expected to close on March 31. The sale terms weren't disclosed.

"It's no longer considered taboo to sell," said Yuichiro Wakatsuki, head of mergers and acquisitions at Bank of America BAC -0.44% Merrill Lynch in Tokyo, adding that, in a recent change, Japanese companies are now more open to his pitches on what assets they can sell, not just what they can buy.

There are other low-margin businesses that the companies may want to unload, but which may generate little interest. Bankers and executives say logical options would be Sony's Vaio personal-computer business, Panasonic's mobile-handset unit and some of its electronics-components operations, and parts of Sharp's household-appliances division.

Another impediment may be the strong yen that has tormented the export-dependent trio in recent years by making it more expensive to sell goods manufactured in Japan. But it also makes it more expensive for non-Japanese companies to make acquisitions in Japan.

Some of Japan's sprawling electronics conglomerates with a more industrial focus—Hitachi Ltd., 6501.TO -1.43% Fujitsu Ltd., 6702.TO -0.58% NEC Corp. 6701.TO -0.60% and Toshiba Corp. 6502.TO -1.29% —to date have been more active than the consumer-oriented companies in shedding assets, having started a series of realignments about a decade ago. But rather than outright sales, they have done that through the creation of a complicated web of joint ventures, often backed by some government funding. The effect was to reduce their exposure to struggling industries, such as cellphones or specialty semiconductors, but didn't actually provide the parent companies a clean exit from those sectors.

Sony, Panasonic and Sharp may have to look abroad or to private-equity firms to unload businesses, because many Japanese companies simply don't have the money to step in and bail each other out. Taiwan contract manufacturer Hon Hai Precision Industry Co. 2317.TW -0.34% already has snapped up assets from Japanese electronics companies, including a stake in Sharp's domestic liquid-crystal-display plant and Sony's overseas TV-assembly factories. Private-equity firms have eyed assets from Japanese electronics companies for years.

Sony is looking at options with its rechargeable-battery business, according to people familiar with the company's thinking. The division makes batteries for laptop computers, smart phones and other mobile devices, but it is a competitive market with Asian rivals driving down prices. While the company hasn't reached a final decision, some Sony executives believe that selling the business to a low-cost Asian manufacturer makes the most sense.

For now, Sony isn't considering more drastic measures such as selling its financial or entertainment businesses, according to these people. Both businesses are profitable and would garner more interest than Sony's Vaio computer business—a division with thin margins in the best of times and that is unprofitable during tough times. Sony doesn't break out earnings for the PC business. Since April, the company has been saying that it will accelerate realigning its business portfolio and shifting its resources to growth areas, but hasn't yet publicly identified any sale targets as part of that effort.

Panasonic President Kazuhiro Tsuga outlined a new round of restructuring measures at the end of October, when the company reported a ¥685 billion ($8.12 billion) quarterly loss. Starting in April, the company will streamline its sprawling 88 business units to 56 units, with only subsidiaries capable of a 5% operating margin making the cut. While some may be closed or consolidated, Mr. Tsuga said the company is also considering selling some of the 32 units on the chopping block.

The troubles Panasonic faces today reflect in part its failure to fully reap the benefits from its 2009 acquisition of Sanyo. Panasonic hadn't integrated Sanyo's digital-camera operations and the overseas Sanyo-brand TV business. A spokeswoman for Panasonic said the company is now studying various options regarding what to do with the TV business. Last year, the company sold Sanyo's household-appliance businesses to the Haier Group.

Cash-strapped Sharp is also considering selling a string of assets including plants in Mexico, China and Malaysia, and Recurrent Energy, a California-based solar-power developer it bought for $305 million in 2010, according to people with knowledge of the company's plans. Sharp has also said it may sell its holdings in other companies and its Tokyo office. Hon Hai is considering buying Sharp's TV factories in Japan or abroad. Around the same time it took a stake in Sharp's LCD plant in March, the Taiwan company agreed to take a stake in Sharp. But the agreement unraveled amid a sharp decline in Sharp shares after dismal earnings. Both companies said they are still talking.

Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com and Kana Inagaki at kana.inagaki@dowjones.com

A version of this article appeared December 24, 2012, on page B3 in the U.S. edition of The Wall Street Journal, with the headline: Electronics Firms Look to Be Leaner.

http://online.wsj.com/article/SB1000...743486424.html


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