Plans to create Japan's biggest electronics group, with $110bn in sales, are in pieces. On Tuesday, after endless bickering over price and more spin than Sanyo Electric's top-of-the-range dryer, Goldman Sachs quit talks to sell Sanyo to its bigger peer, Panasonic. Matching the expectations of buyers and sellers is always tricky; in this case the gap was a veritable chasm. Panasonic wanted to pay Y120; Goldman Sachs, based on a 30 per cent premium to Sanyo's six-month average, was looking for something closer to Y300. That compares with Y114-186 in the month before news of the deal leaked and Tuesday's Y156 close. Both sides had strong bargaining positions. Panasonic's ability to tap synergies and $8bn of net cash make it effectively the only buyer around. Goldman Sachs and its Japanese banking cohorts, Daiwa Securities SMBC and Sumitomo Mitsui Banking Corp, are far from distressed sellers. They invested when Sanyo was on its knees and as a result hold 430m preferred shares. From March, these can be converted into common equity, giving a 70 per cent stake in Sanyo.
Assuming Goldman Sachs does not want to stay in electronics forever, this simply delays an exit that will inevitably be difficult; no-one chooses to sell a big slug of shares in the open market. Waiting around in the current climate is not ideal. On average, analysts are targeting Y112.50 per share, and control premiums are not what they used to be. Bulls can argue that Sanyo's strength in batteries may merit a re-rating as carmakers rush to embrace hybrid technology. Against that, Sanyo expects operating income to fall by a third this year to $520m; analysts don't expect 2010 to be a great deal better. It still has some ropey business lines, including chips. Some $500m of debt falls due in May, and refinancing costs may well move higher in current conditions. Panasonic was wrong-footed this time, but this is a deal that still needs to happen.
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