Sharp buys 14% stake in tie up with troubled rival Pioneer

Japan’s Sharp Corp. said last week it had agreed to become the top shareholder in its financially troubled rival Pioneer Corp. as part of a broad business tie up in response to growing competition.

Sharp, which has seen four straight years of record profits thanks to fast-growing sales of flat-screen televisions, said it would take a stake of about 14 percent in Pioneer, which will take a 0.9 percent stake in Sharp. The heads of both companies said they were not contemplating a full merger in the future.

Pioneer is trying to reverse a profit slump after being saddled with overcapacity in the plasma display panel (PDP) sector even as prices keep declining. “The electronics industry is facing severe global competition as the pace of technological progress is faster than ever,” said Sharp president and chief operating officer Mikio Katayama. “We can’t even foresee what will be happening three months ahead in the industry,” he said.

The two companies said they would collaborate in areas such as display screens, next generation DVD and car electronics.

The combination of Sharp’s state-of-the-art flat panel televisions and Pioneer’s audio technology will create “a significant synergy effect,” said Katayama. For Pioneer, the tie up with Sharp “will create an opportunity for us to add liquid crystal display (LCD) TVs to our product lineups,” said Pioneer president Tamihiko Sudo. While Pioneer’s focus remains on PDP, “the reality is that LCD has its strength in the market and every successful company has both LCD and PDP in their business portfolio,” he said. Sharp meanwhile is a pioneer of LCD screens, having launched one of the world’s first LCD pocket calculators in 1973.

After the cross-shareholding deal, which is due to be completed on December 20, Sharp will pay Pioneer 41.4 billion yen (357 million dollars), while Pioneer will pay Sharp 19.75 billion yen. “Pioneer got what it really needs -- the cash -- which will allow it to speed up the turnaround drive,” Tokai Tokyo Research Institute analyst Osamu Hirose said. Even if Pioneer is financially struggling, its established brand image as a high-end product maker in Europe and a strategic shift to focus on up market and niche products may also be beneficial to Sharp, he said. “In addition, the deal may open better business opportunities for Sharp which has been eager to enter car electronics and enhance its presence in the audio market,” Hirose said.

Pioneer’s Sudo said that cash was not the main incentive for the deal. The alliance was “aimed primarily at taking advantage of each other’s strengths so as to create new values, and the cross-shareholding is a way to show each other’s commitments to the alliance,” he said.
Pioneer’s operating profit plunged 81 percent in the three months to June, hit by falling sales of plasma display panels.

Pioneer’s problems arose in 2004 when it bought the plasma display panel-making operations of NEC Corp for 40 billion dollars, hoping to become the world leader. However, because NEC supplied its products to Sony Corp, which later stopped making PDP TVs, the purchase meant Pioneer was saddled with overcapacity.