Panasonic Corp, Japan's struggling maker of Viera brand
TVs, owns more than 10 million square metres of office and factory
space, dormitories for its workers and sports facilities for its rugby,
baseball and women's athletics teams.
As it battles for Christmas
shoppers' wallets in the year-end holiday season, the sprawling
electronics conglomerate is also seeking buyers for some of those
properties to trim its fixed costs and improve cashflow at a time of
intense competition, particularly from South Korean rivals such as
Samsung Electronics Co.
Japan's other troubled
TV makers, Sony Corp and Sharp Corp, are
also selling buildings and businesses in a giant 'garage sale' that
could raise a combined $3 billion.
Panasonic plans to raise $1.34
billion from offloading property and shares in other Japanese companies
by end-March, the group's chief financial officer Hideaki Kawai told
"We have a lot of land and buildings in Japan and
overseas," he said in an interview at the company's head office in
Osaka, in western Japan. He declined to list which properties would go
on the block, but said most are in Japan.
Included is a 24-storey
central Tokyo block - built in 2003 with more than 47,300 square metres
and housing 2,000 Panasonic workers - a source familiar with the plan
Kawai added that Panasonic would raise about a
quarter of the sell-off funds by getting rid of shares it owns in other
companies - a common practice of cross-shareholdings in Japan.
proceeds would help bolster free cashflow to 200 billion yen for the
business year to March, Kawai said, and allow Panasonic to reduce its
debt and maintain its crucial research and development effort as it
revamps its business portfolio.
It will sell more assets in the
year starting in April if cashflow dips below 200 billion yen, Kawai
added. Panasonic President Kazuhiro Tsuga has promised to shut or sell
businesses operating at below a 5 percent margin. Those sales could
start as soon as April.
Panasonic's fixed assets of $21 billion are around 30 percent more than those of Apple Inc ,
and are almost double the company's market value. The company, founded
almost a century ago as a small electrical extension socket maker,
trades at around half its book value - which includes intangible assets
such as patents. Sony trades at 39 percent of book, Sharp at 30 percent.
fixed assets - buildings, land and machinery - of the three companies
that were not so long ago a byword for innovation in household gadgetry
total around $42 billion, while their combined market value is $24
Cashflow is king
The three firms have been
downgraded by credit ratings agencies, making it tougher to raise
funding on capital markets, and making asset sales more urgent.
assets "is good in terms of their credit ratings because, for all
three, it will lower fixed costs and they can reduce their capex
requirements. Eventually, this could improve operating margins and, more
importantly, cashflow," said Alvin Lim, an analyst at Fitch Ratings in
Fitch, which makes its ratings without input from company
management, last month cut Panasonic to BB and Sony to BB minus, the
first time one of the major agencies has relegated either company to
junk status. Sharp is ranked B minus, adding to its borrowing costs.
rate Panasonic as investment grade, and it should have various funding
options. Selling assets it can do without, to avoid raising additional
borrowing, can be an option," said Osamu Kobayashi, an analyst at
Standard & Poor's.
While Korean rivals have also benefited
from a weaker local currency, data from the Japan Electronics and
Information Technology Industries Association shows that Japanese
production of consumer electronic equipment fell to just above $15
billion last year from more than $19 billion a decade ago. Output in
September was just $980 million, half last year's level.
with Korean makers seems to be widening. It's going to be very difficult
for them to regain their top-tier position," said Fitch's Lim.
the three Japanese firms, all under new leadership, have sketched out
restructuring plans, the cost of insuring their debt against defaulting
in 5 years has dropped from spikes just a month ago. Credit default
swaps for Sharp and Sony are down to levels last seen 3 months ago,
while Panasonic's have dropped 40 percent in the past month.
Panasonic is looking to revamp its business around batteries, auto
parts and household appliances, Sony is doubling down on smartphones,
gaming and cameras. Sharp, meanwhile, is focusing on display screens and
is forging alliances with the likes of Taiwan's Hon Hai Precision
Industry and U.S. chipmaker Qualcomm Inc .
may also take the real estate sale route to raise much-needed cash,
with a possible sale of its 37-storey New York headquarters, dubbed by
New Yorkers as the 'Chippendale' because of its design that is
reminiscent of the period English furniture. Selling that jewel could
raise $1 billion, media have reported.
The maker of Vaio laptops,
PlayStation gaming consoles and Bravia TVs may also sell its battery
business, which makes lithium ion power packs for tablets, PCs and
mobile phones. The company has been approached by investment banks
offering to sell the unit, which employs 2,700 people and has three
factories in Japan and two overseas assembly plants. Sony values the
business's fixed assets at $636 million.
Potential buyers could
include BYD Co Ltd, a Chinese carmaker
backed by billionaire investor Warren Buffett, and Taiwan's Hon Hai -
which part owns Sharp's advanced LCD panel plant in Sakai, western
Japan, and is in talks to buy TV assembly plants in China, Malaysia and
Mexico for $667 million, Japan's Sankei newspaper has reported.
has mortgaged nearly all its properties to secure a $4.6 billion
bailout from Japanese banks and so has few assets to offer in a grand
Instead, it's selling part of the garage.
has agreed to buy a 5 percent stake in Sharp, making it the largest
shareholder. Hon Hai, which earlier this year agreed to invest in Sharp -
before its stock slumped in the wake of record losses - has said it
remains interested in taking a stake.
"Whatever they can get to
get through this fiscal period by scaling down their operation is a
critical step for them to remain afloat," said Fitch's Lim.
Copyright Thomson Reuters 2012