Sony and Olympus Tie the Knot

After a long engagement, the prenupts have all been signed and the connection between Olympus and Sony has become permanent. 

The back story, for those who don't remember it, is that Olympus executives managed to lose US$1.5 billion in ill advised investment speculation back in the 1990's, then proceeded to hide that through a series of dummy transactions and investments. When this was discovered by a newly appointed non-Japanese CEO, all hell broke lose in Olympus. The end result was the stock price fell by 75% at one point, the three top executives most involved were charged with (and have now plead guilty to) crimes, other board members were sued by the company itself (!), and a series of restatements of the company's financials put it in jeopardy of not living up to loan covenants and seriously short on capital.  From the beginning of the end of this saga, it's been clear that Olympus would need to seek capital, the only question was where it would come from and what the cost would be.

Today those things are clear. Olympus will issue new shares that amount to 11.46% of the voting rights in the company in return for a large cash infusion (50 trillion yen). But it's trickier than that. A new joint venture medical business will be established between the companies to create next generation endoscopes (3D and 4K resolution). This venture will be be 51% capitalized by Sony's money, and it's unclear whether that means that Sony will thus hold the majority stake in that business. If so, this is a serious admission of weakness on Olympus' part, as legacy endoscopes are the core of Olympus business and their most profitable product; ceding control of future endoscopes to a partner would be a humbling step backwards. In essence, Olympus may have sold half of their future to pay for their past sins. 

But it's the camera business you want to know about. The joint statement says all we know at the moment: "The two companies aim to enhance their competitiveness, primarily in the area of compact digital cameras, by exploring opportunities for mutually beneficial transactions and collaboration between their respective camera businesses, including the supply of Olympus technologies such as camera lenses and mirror cells to Sony, and the provision of Sony image sensors to Olympus." Olympus, of course, is already using Sony image sensors, and that's been a step forward for their m4/3 cameras. It will be interesting to see if Olympus' supplies lens designs to Sony that help NEX move forward. For the time being, at least, m4/3 and NEX continue on as before at the respective companies, perhaps with parts and technology sharing. 

More interesting was the statement of current ownership in the partnership announcement. There's broad overlap in the major investors of Olympus and Sony even before the Sony capital infusion. 24% of Olympus shares were owned (or in trustee relationship) by 8 banks. 28% of Sony is owned (or in a trustee relationship) by 10 banks, and 5 of those banks overlap. 

This, of course, is one of the complaints about the very opaque and incestuous Japanese business scene: that it's a smallish group of Tokyo-based financial organizations that call most of the shots in terms of what happens with Japanese companies. Right now there's another Japanese electronics company that's partly involved with cameras, Renasas, that is in trouble and an American company (KKR) is attempting to buy them. A group of Japanese banks and businesses have now begun to put together a counter bid to try to keep Renasas "Japanese." 

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