Japanese electronics maker Sharp will buy about $357 million worth of new shares from Pioneer Corp and work with its loss-making rival in developing DVD players, car electronics and displays.
The deal is the latest move by Japan's electronics conglomerates to form alliances or ditch unpromising businesses to try and keep up with deep-pocketed global rivals and respond to increasing shareholder pressure for better returns.
Sharp is one of the world's top makers of liquid crystal display (LCD) TVs, competing with Sony Corp and Samsung Electronics Co, while Pioneer is a producer of plasma display televisions, audio equipment and car electronics.
While Sharp is one of the strong players in the fast-growing flat TV market, Pioneer has been losing money because it lacks the scale to make its products as efficiently as Matsushita Electric Industrial or LG Electronics Inc.
This is more a matter of helping Pioneer than anything else. It doesn't seem as if it's positive for Sharp, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. What it basically means is that Pioneer can't go it alone.
Pioneer said it would issue 30 million shares to Sharp, raising 41.4 billion yen ($357.3 million) and making Sharp its top shareholder with a stake of 14.3 percent. Sharp, in turn, will allot 10 million treasury shares to Pioneer for 19.7 billion yen.
The two companies said they would work together on the development of next-generation DVD players, network-related products for the home, car electronics and imaging and display technology.
The alliance also underscores the revival of the mutual holding of shares between Japanese companies to cement business relationships as well as to protect against takeovers, though the practice is often criticized as an inefficient use of capital.
Yasuo Yabe, director of sales at Meiwa Securities, said the news could spur buying of Japan's electronics sector, which is thought to be long overdue for a shake-out.
This is not a merger or acquisition and is a typical alliance for Japanese companies ... but over the long term, the move should be good, Yabe said. I think it is positive for electronics shares as well.
Prior to the announcement, shares in Sharp closed down 1.8 percent at 1,959 yen while Pioneer's stock fell 0.1 percent to 1,401 yen. The benchmark Nikkei average gained 0.2 percent on the day.
(Additional reporting by Elaine Lies, Eriko Amaha and Nathan Layne)