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    6758   JP3435000009

SONY GROUP CORPORATION

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Exclusive: Banks offer to help Sony offload battery unit - sources

11/28/2012 | 02:12am EST
Sony's logo on its Vaio laptop is seen at its showroom in Tokyo

TOKYO (Reuters) - Sony Corp has been approached by at least three investment banks offering to sell its battery business as the struggling Japanese group looks to offload non-core assets and focus on reviving its consumer electronics business, banking sources said.

Selling the unit, which employs 2,700 people and had sales last year of $1.74 billion, would help Sony cut costs and generate cash as it restructures its operations, three people involved in the preliminary discussions told Reuters.

The company, a byword for innovative gadgetry in the 1970s and 80s, has been battered by weak demand for its TVs in a fiercely competitive market. The TV business has racked up huge losses; Sony's market value has slumped to below $10 billion and ratings agency Fitch last week downgraded the company's debt to "junk" status - a move likely to push up borrowing costs and make asset sales more attractive.

CEO Kazuo Hirai has pledged to rebuild Sony around gaming, digital imaging and mobile devices, while nurturing new businesses such as medical devices. He is axing 10,000 jobs, closing facilities and selling assets. Any disposals would be part of a broader "garage sale" by Japan's leading electronics groups that are hurting in weak markets and tight financing.

Potential buyers for Sony Energy Devices Corp - founded in 1975 as Sony-Eveready, a joint venture with Union Carbide Corp - could include Taiwan's Hon Hai Precision Industry and BYD Co Ltd, a Chinese carmaker backed by billionaire investor Warren Buffett, said one of the sources. Hon Hai is also in negotiations to become rival TV maker Sharp Corp's biggest shareholder.

FOREIGN INTEREST

Despite a strong yen, interest is likely to come mainly from potential foreign buyers, said the sources, who did not want to be named as the talks are private.

Selling the business overseas may not go down well with a Japanese government that in the past has kept technology at home by promoting alliances between local producers. Panasonic Corp, NEC Corp and Hitachi Ltd also make lithium-ion batteries, though the firms' fabrication technology differs.

Sony declined to comment on the possible sale of the business, which makes lithium-ion batteries used in smartphones, tablets and PCs. "At our corporate strategy announcement in April, (Hirai) said we would explore possible alliances in E-vehicle batteries and battery storage," said spokesman George Boyd.

As with TVs, Sony has struggled to compete against South Korean rivals in a battery business that is worth $18 billion a year. The small cells that power mobile devices now account for around 60 percent of the market, ahead of those used in cars and electrical tools, according to research company IHS iSuppli.

While lithium-ion battery demand has steadily expanded with the boom in mobile consumer electronics, severe price competition has resulted in razor thin margins that favor large-scale manufacturers with weak local currencies.

"The battery business is a prime example of the company's loss-making and unwanted assets. It doesn't make sense for them to keep it," said one of the banking sources.

FALLING MARKET SHARE

As Hirai doubles down on Sony's strength in consumer electronics, the company has sold a chemicals company, with 2,900 workers, and may also let go its U.S. headquarters building in New York go. At the same time, it has spent close to $2 billion on a U.S. game clouding company and a stake in medical equipment maker Olympus Corp.

Sony produced 74 million lithium-ion battery cells in July-September - almost 40 percent fewer than in the first quarter of 2008, when its output topped Samsung SDI Co Ltd's 110 million and LG Chem Ltd's 54 million, according to Techno System Research in Tokyo. Sony's market share is now 7 percent, dwarfed by Samsung SDI's 27 percent, Panasonic's 21 percent and LG Chem's 17 percent.

Sony's battery unit, which also makes button batteries for watches and smaller appliances and optical devices, has three factories in Japan and two overseas assembly plants in China and Singapore. It has yet to enter the more lucrative business for automotive batteries.

In its most recent filing, Sony valued the battery unit's fixed assets, including production sites and machinery, at 52 billion yen ($633 million). Under Sony's accounting rules, asset sales are typically booked as operating profit.

The cost to protect $10 million of Sony debt against default for five years has edged higher this week to almost $400,000. The CDS spreads had tumbled earlier this month - from above 480 basis points - after Sony said it would raise 150 billion yen ($1.9 billion) through a sale of convertible bonds.

($1 = 82.1200 Japanese yen)

(Additional reporting by Reiji Murai; Editing by Ian Geoghegan)

By Emi Emoto and Tim Kelly


ę Reuters 2012
Stocks mentioned in the article
ChangeLast1st jan.
BERKSHIRE HATHAWAY INC. 0.38% 463652 Delayed Quote.2.50%
CDS CO., LTD. 0.00% 1610 Delayed Quote.-0.12%
HITACHI, LTD. 1.41% 6194 Delayed Quote.-0.95%
HON HAI PRECISION INDUSTRY CO., LTD. -0.97% 102 End-of-day quote.-1.92%
LG CHEM, LTD. 3.27% 664000 End-of-day quote.7.97%
MSCI TAIWAN (STRD) -0.53% 729.575 Real-time Quote.0.40%
NEC CORPORATION -1.12% 4860 Delayed Quote.-7.34%
OLYMPUS CORPORATION -0.14% 2436 Delayed Quote.-7.79%
PANASONIC CORPORATION 0.24% 1266.5 Delayed Quote.0.32%
SAMSUNG SDI CO., LTD. -1.40% 633000 End-of-day quote.-3.36%
SHARP CORPORATION 0.32% 1251 Delayed Quote.-5.68%
SONY GROUP CORPORATION -3.17% 12175 Delayed Quote.-13.78%
TOKYO ELECTRIC POWER COMPANY HOLDINGS, INC. 0.65% 309 Delayed Quote.2.36%
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Financials
Sales 2022 9 957 B 86 828 M 86 828 M
Net income 2022 803 B 6 998 M 6 998 M
Net Debt 2022 520 B 4 535 M 4 535 M
P/E ratio 2022 19,6x
Yield 2022 0,49%
Capitalization 15 643 B 137 B 136 B
EV / Sales 2022 1,62x
EV / Sales 2023 1,48x
Nbr of Employees 109 700
Free-Float -
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Mean consensus BUY
Number of Analysts 19
Last Close Price 12 620,00 JPY
Average target price 17 009,47 JPY
Spread / Average Target 34,8%
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Managers and Directors
Kenichiro Yoshida Chief Financial Officer & Executive Vice President
Hiroki Totoki Chief Financial Officer, Director & Vice President
Shuzo Sumi Co-Chairman
Toru Katsumoto Chief Technology Officer, Executive VP, Head-R&D
Tsuyoshi Kodera Head-Information Systems & Security
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SONY GROUP CORPORATION-13.78%135 786
PANASONIC CORPORATION0.32%25 996
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SHARP CORPORATION-5.68%6 680
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DIXON TECHNOLOGIES (INDIA) LIMITED-17.41%3 615