Japan's Panasonic Corp <6752.T> plans to buy out subsidiaries Sanyo Electric <6764.T> and Panasonic Electric Works <6991.T> for up to 818.4 billion yen ($9.4 billion) to strengthen its push into greener businesses.
The world's No.4 flat TV maker will raise up to 500 billion yen in a new share issue to help finance the buyouts, sending its shares down as much as 11 percent.
Under President Fumio Ohtsubo, Panasonic has been shifting away from low-margin home electronics products and investing more aggressively in solar cells, batteries and other energy-related areas which offer promising growth prospects.
The cost may not be small, but I think investors will welcome the deal as Panasonic can boost its rapidly growing environment-related business, said Okasan Securities analyst Kazumasa Kubota.
With only its audio and visual business the firm could not expect to grow dramatically.
Panasonic shares dived to its lowest since March 2009 after Reuters and other media reported the buyouts, on concerns the move would dilute existing shares. The fall wiped as much as $3.5 billion off the company's market value.
Panasonic is struggling to boost profits in overseas markets as it battles tough price competition from South Korea's Samsung Electronics <005930.KS> and LG Electronics <066570.KS>.
It has said it would withdraw from overlapping business with Sanyo.
A deal would also make it easier for Panasonic to put more resources into promising businesses such as solar power and lithium ion batteries.
Panasonic will launch an offer for the two subsidiaries from August 23 to October 6. The Osaka-based firm will pay 138 yen for each Sanyo share, 9.5 percent higher than the average price over the past three months, and 1,110 yen for each Panasonic Electric Works share, 17.1 percent higher.
Panasonic bought a 50 percent stake in Sanyo in December for about $4 billion, gaining control of the world's top maker of rechargeable batteries and a producer of solar cells. It owns 51 percent of Panasonic Electric Works, which makes housing materials and lighting equipment.
After making the two subsidiaries wholly owned, the maker of Viera flat TVs and Lumix digital cameras plans to realign its structure into three core businesses by January 2012 to beef up profitability, it said in a statement.
Ohtsubo unveiled a new three-year business plan in May under which Panasonic aims to roughly double its operating profit margin to 5 percent or more by March 2013, while boosting sales by a third to 10 trillion yen.
Panasonic shares closed down 7.7 percent at 1,077 yen ahead of the announcement. Sanyo shares soared 26.3 percent to 149 yen, while Panasonic Electric Works gained 15.4 percent to 1,124 yen. The benchmark Nikkei average <.N225> fell 0.6 percent.
Panasonic and Sanyo have been planning to withdraw from overlapping businesses that would account for 300 billion yen in annual revenue, and merge the development and production of white goods.
Based on Panasonic's current market value of 2.86 trillion yen, the planned new share issues would boost the number of outstanding shares by about 18 percent.
(Additional reporting by Emi Emoto, Reiji Murai and Nobuhiro Kubo; Editing by Anshuman Daga)