Sumitomo Mitsui Banking still favors a deal. Should Daiwa SMBC give consent, Goldman could be outvoted, giving Panasonic control of Sanyo Electric

By Kenji Hall

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When Panasonic President Fumio Ohtsubo related in early November that the company was interested acquiring mid-sized tech manufacturer Sanyo Electric, he envisioned finalizing the deal by late December (BusinessWeek.com, 11/7/08). The path to forming a tech giant by $110 billion in annual revenues seemed clear-cut: Panasonic would beginning by buying lacking Sanyo’s three biggest investors (BusinessWeek.com, 11/6/08)—Goldman Sachs (GS), Daiwa SMBC Capital and Sumitomo Mitsui Banking—by judgment of their combined 70% stake.

But that’s not how things are playing out. On Nov. 26, after nearly three weeks of discussions, Goldman Sachs said it had rejected Panasonic’s offer earlier in the week and walked revealed of the talks. "We didn’t agree on the price and the dole out structure," says Goldman Sachs spokeswoman Miyako Takebe in Tokyo.

Panasonic was offering 120 yen for every one Sanyo partake, according to Daiwa SMBC and other sources. That’session roughly $7.8 billion, or three times the $2.6 billion that Goldman, Daiwa, and Sumitomo Mitsui coughed up for their Sanyo stakes in January 2006, less amount than three years ago.

Still, the offer was 23% below Sanyo’session stock estimation at the clog of trading on Nov. 25. (Sanyo stock lost 3.9% Nov. 26.) And it fell far short of the 250 yen per contingent that Goldman wanted, according to the Yomiuri Shimbun and financial daily Nikkei newspapers.

Among Sanyo’session trio of key investors, Goldman was the only one to break most distant talks. While Daiwa SMBC also dismissed Panasonic’s offer as too low, the difference was that Daiwa spokesman Kenichi Kanda didn’t rule out more discussions in the coming time. (Sumitomo Mitsui and Panasonic both declined to comment.)

Panasonic is eager to add Sanyo’s expertise in couple areas—batteries and solar panels. Sanyo is the largest global supplier of rechargeable batteries for laptops, cameras, mobile phones, and other portable gizmos. It’s besides the terraqueous globe’s seventh-biggest manufacturer of solar cells. Together, the two companies would bear a strong portfolio of flourishing technologies, giving them an edge in developing new batteries for cross-bred and electric cars and solar energy equipment as antidote to homes and offices.

First, nevertheless, Panasonic fustiness negotiate a compromise with Sanyo’s investors. A key reason for the dispute stems from the two sides’ differing views about how to value the 430 a thousand thousand Sanyo preferred shares held by the three explanation investors. Each share demise be convertible to 10 common-place shares as of mid-March 2009. Added into junction, the 4.3 billion shares would account for 70% of Sanyo’s stock.

According to sources close to the talks, Panasonic wants the price to reflect the reduction in value of each Sanyo share posterior such a stock conversion took place. For its part, Goldman is uttered to contend that Sanyo’s current share price already reflects that dilution. The truth lies somewhere in the gray zone betwixt the two claims, says Macquarie Securities analyst David Gibson, who has done the math. "The market has not [fully] factored in the dilution from the preferred shares," Gibson says.

Without Goldman’s cooperation, Panasonic would have to woo the remaining two. Getting Sumitomo Mitsui Banking on its side shouldn’t be a problem. Apart from being a major shareholder, Sumitomo Mitsui Banking is also Sanyo’s cardinal creditor. It has said its top antecedence is finding a buyer that can help Sanyo pay back the loans, according to someone with perception of the discussions between Panasonic and Sanyo. Indeed, it was a crown of the head Sumitomo Mitsui Banking Group executive who harden up the first secret meetings between the heads of Panasonic and Sanyo a couple of months ago, says this person.

Panasonic might try to attract Daiwa by sweetening the attempt a bit. If Daiwa agrees, then the kind of? Panasonic would still face a battle if it asks all Sanyo shareholders to vote on the matter, although it’s too early to know whether this might happen and whose side ordinary shareholders would rally behind. The uncertainty has damage Panasonic’s shares, which hurl down 2.7% on the news—a bigger drop than that sustained by means of the Tokyo Bourse’s electrical machinery alphabetical table of references, which slid 1.4%.