TOKYO: Panasonic Corp said it aims to make Sanyo Electric Co Ltd a subsidiary in a move that will create Japan's largest electronics maker.
The announcement was widely expected after sources told Reuters that Sanyo and Panasonic, sitting on $10 billion in cash and cash equivalent, had agreed in principle to such a deal, which one brokerage analyst has estimated could be worth up to $8.8 billion.
The two Osaka-based companies will hold a joint news conference at 7 p.m. (1000 GMT) on Friday attended by Panasonic President Fumio Ohtsubo and Sanyo President Seiichiro Sano.
The move, a rare outright acquisition in the overcrowded Japanese electronics sector, comes as makers of flat TVs and digital cameras worldwide scramble to boost profitability amid the global economic slowdown.
Panasonic did not say how much it plans to offer for each Sanyo share but Credit Suisse analyst Koya Tabata earlier this week reckoned Panasonic could offer up to 140 yen per Sanyo share, a premium of 40 per cent to Sanyo's enterprise value.
That would value a deal for the whole of Sanyo at up to 862 billion yen ($8.8 billion).
Panasonic, the world's top plasma TV maker and formerly known as Matsushita Electric, is keen to acquire Sanyo because of its leading position in rechargeable batteries, which are widely used in mobile phones and laptop PCs.
The new entity would in particular be well-positioned to benefit from a shift in the auto industry to hybrid and electric vehicles.
Panasonic runs a car battery venture with Toyota Motor Corp, while Sanyo offers nickel metal hydride batteries to Ford Motor Co and develops lithium-ion batteries for cars with Volkswagen AG.
"As a result of this merger Panasonic will become a huge firm, the Toyota of the electrical appliance world, and that's good," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
Referring to US President-elect Barack Obama he added: "Under an Obama administration there's likely to be quite a push toward clean energy, and
that means that Panasonic is now in a very strong position given Sanyo's battery production. They have this market wrapped up now."
The deal would also enable it to enter the promising solar market as Sanyo is the world's seventh-largest solar cell maker behind such rivals as Germany's Q-Cells, Japan's Sharp Corp and Suntech Power Holdings Co Ltd of China.
Reuters and other media reported on Saturday that Panasonic was in talks with Sanyo's top three shareholders Daiwa Securities SMBC, Sumitomo Mitsui Banking Co and Goldman Sachs to take control of Sanyo.
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 an SMFG unit.
Mizuho Asset Management fund manager Yoshihisa Okamoto sees the deal as positive for Panasonic, but said sluggish auto demand and falling oil prices could dim the prospects for solar panels and auto-use batteries.
"Given the poor performance of car makers and tumbling crude oil prices, it could be a while before the development of ecologically friendly cars and growing use of solar panels will drive its earnings," he said.
Toyota, the world's largest auto maker, shocked investors on Thursday with a warning that profits this year would hit a 13-year low.
Prior to the announcement, shares in Panasonic closed down 3.8 per cent at 1,528 yen, while Sanyo fell 0.5 per cent to 203 yen. The Nikkei average was down 3.6 per cent.