Sony Corp., Japan’s largest electronics exporter, plans to invest $645 million for an 11.5% stake in Olympus Corp., the world’s largest endoscope maker, in a deal that will mutually benefit both companies.
Sony has had four straight years of financial losses, while Olympus is recovering from an accounting scandal after a former chairman pled guilty to covering up $1.7 billion in losses.
Olympus had been seeking an investor for months, and Sony beat out bids from several other companies, including Fujifilm Holdings Corp.
Sony To Make Medical A Main Profit Source
The purchase is part of Sony’s strategy to expand in the medical-equipment business.
Sony President Kazuo Hirai told BBC News: "At Sony we are aggressively pursuing the growth of our medical business, with the aim of developing it into a key pillar of our overall business portfolio."
In April, Hirai said he could see the medical business becoming one of the company’s main profit sources in the future. Sony hopes its image sensor technology will give it an edge over competitors.
In 2011, Sony purchased Micronics, a medical equipment developer, and more life-science businesses may be purchased in the future.
Olympus controls 70% of the global endoscope market, and the deal will allow Sony access to Olympus’s sales and customer base.
To avoid antitrust regulations, the purchase will be made in two transactions by Sony, and Sony will select one director to sit one Olympus’s board.
New Sony, Olympus Medical Equipment Venture
Sony and Olympus will also begin a new company together by the end of the year that will develop, manufacture and sell medical equipment. Sony will hold 51% of the new company, while Olympus will hold 49%.
Analysts caution, however, that it takes time for medical equipment businesses to turn a profit as new devices must first receive regulatory approval.
Both companies plan to cut their workforces, with Sony predicting 10,000 job cuts and Olympus eliminating 2,700 positions.
Key Statistics - Medical Device Industry (source: Espicom)
- The medical device market is expected to be worth $350 billion globally by 2016. From 2011-2016, this is an average increase of 5% annually.
- Over the next five years, the medical device market in Western Europe is expected to be valued at over $82 billion.