Sony Corp., Japan's largest consumer-electronics exporter, will invest 50 billion yen ($645 million) in Olympus Corp. as part of its strategy to move into the medical-equipment business.
The two companies will form a joint venture to make endoscopes and other medical devices, according to finance ministry filings today. Olympus is the world's largest endoscope maker with a 70 percent market share.
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Sony President Kazuo Hirai set a goal of entering into new businesses when he took over in April with the company reeling from four years of losses. The investment will help Olympus, which admitted to a 13-year accounting fraud last year, shore up its capital ratio as it recovers from the scandal that led the company to restate earnings and replace its entire board.
"There can be synergies between the two companies as Sony's image sensors can be used in endoscopes," said Yuji Fujimori, a Tokyo-based analyst at Barclays Plc. "Still, it may take time for their businesses to bring results as medical equipment usually needs regulatory approval before going on sale."
Shares of Sony fell 1.1 percent to 919 yen in Tokyo trading today, before the announcement. The stock has declined 34 percent this year. Olympus gained 1.7 percent, the highest level in more than week, to 1,520 yen.
Sony will buy an 11.46 percent stake in Olympus and become its largest shareholder in two tranches. In the first, to be done by Oct. 23, Japan's biggest consumer-electronics exporter will purchase 13.1 million shares at 1,454 yen apiece, costing 19 billion yen. In the second tranche, Sony will buy 21.3 million shares at the same price, costing 31 billion yen. This will be completed by Feb. 28.
The share sale was divided in two transactions because of antitrust regulatory reason, they said.
The two companies will set up a joint venture by the end of this year to develop, make and sell new endoscopes and other medical devices. Sony will hold 51 percent of the venture and Olympus 49 percent.
Sony and Olympus also agreed to make efforts to elect one director, selected by Sony, into Olympus's board, according to a joint statement.
Olympus restated five years of earnings in December and took a $1.3 billion cut in its net assets after admitting it paid inflated fees on takeovers and overpaid for three Japanese companies to conceal past investment losses.
The company wants to increase its capital ratio -- the ratio of equity capital to total assets -- to more than 30 percent by March 2017 from 2.2 percent as of the end of June. President Hiroyuki Sasa in June said a tie-up may help accelerate growth in its camera and medical businesses.
Sony, the maker of PlayStation game consoles and Cyber-shot cameras, wants to speed up a move into health equipment by using the edge its image sensors have over rivals, Hirai said in April. Sony's medical business has the potential to be one of its main sources of profit in the future, he said.
Sony plans to generate 50 billion yen in annual sales from printers, monitors, cameras and recorders for the medical industry in the year ending March 2015, he said then.
The company last year acquired Micronics Inc., a Redmond, Washington-based developer of devices used for disease diagnosis, treatment monitoring and blood testing, for an undisclosed amount. Sony may purchase more firms to expand in life-science businesses, the company said in April.
Sony, which is cutting 10,000 jobs to return to profit, is spending 80 billion yen to boost its production capacity of complementary metal-oxide semiconductors, or CMOS, by one-third for 2013. The sensors, used in smartphones and compact cameras, also can be used in endoscopes, the company said in January.
Olympus shares have more than tripled in the past 10 months. The stock collapsed since the board fired president Michael Woodford on Oct. 14 after he questioned fees paid by the company for takeovers.
Net assets of Olympus fell to 23 billion yen in the three months ended June from 48 billion yen in the year ended March 31, the company said in August. The net loss widened to 4.5 billion yen in the three months ended June 30, compared with a 1.4 billion yen loss a year earlier.
Olympus is also cutting 2,700 jobs, or 7 percent of its workforce, and on Aug. 24 said it agreed to sell its subsidiary ITX Corp.'s telecommunication business for 53 billion yen to boost capital.