Sony Corp and Fujifilm Holdings are leading contenders for an equity stake in Olympus Corp, sources familiar with the situation said, as the scandal-hit medical equipment maker moves to shore up its finances.
The field of possibilities has narrowed, with foreign firms and some domestic companies such as Panasonic Corp now seen as unlikely partners, the sources said, although a leadership vacuum at Olympus was slowing progress on a deal.
It looks like the contenders will be domestic players, said a source close to one of Olympus's banks.
Sony, which has relatively little experience in the healthcare sector, supplies image sensors to Olympus and is considered keen to tap into its lucrative business in diagnostic endoscopes, where it holds a 70 percent global market share.
Sony has been trying to integrate software, content and hardware to create an entertainment network. But Apple has a stranglehold on this market, so however hard it tries, it's going to be a runner-up at best, said Mizuho Investors Securities analyst Nobuo Kurahashi.
On the other hand, healthcare is a growth market ... If it is not too damaging to Sony's balance sheet, it is certainly interesting, he said.
The Japanese business weekly Diamond reported on Monday that Sony Chief Executive Howard Stringer had given the green light for an equity deal.
Olympus' shares surged by 8.2 percent to 1,297 yen, helped also by the Tokyo Stock Exchange's decision on Friday to keep the stock listed.
The stock is still down nearly 50 percent since the company fired its British chief executive Michael Woodford on October 14, triggering a series of stunning revelations in a $1.7 billion accounting fraud.
Shares in Sony also rose about 4 percent to 1,422 yen, although Mizuho Investors' Kurahashi said he did not believe they had been boosted by the Diamond report.
Olympus spokeswoman Saori Yamazaki reiterated on Monday that the company was considering various management reform options and that no specific decisions had been made on any issues.
Sony spokesman Shigenori Yoshida said his company had no comment.
Fujifilm, which holds about a 10 percent share of the diagnostic endoscope market, has said it is willing to support Olympus if asked, although analysts have said it could be hindered by Japan's antimonopoly rules.
A source close to Fujifilm, however, said the regulatory hurdles would not be insurmountable, noting that the combined share in the overall endoscope market, including surgical endoscopes and related products, would not be unreasonable.
The source also noted that Olympus already had a dominant market share anyway that would be little affected by adding Fujifilm's portion.
In addition to Sony and Fujifilm, another company that has shown strong interest in a stake in Olympus is Terumo Corp, a smaller maker of medical products such as syringes that already holds a small stake in Olympus, the source close to one of Olympus's banks said.
Private equity firm TPG Capital is also willing to invest about $1 billion in Olympus in a joint deal with one of the corporate suitors, a person familiar with the company's thinking has said.
A source close to the situation said that Panasonic, which had once been looking at the possibility of a deal, had suddenly lost interest.
Despite the narrowing field, a decision on an equity deal still looks far off with negotiations hobbled by a leadership vacuum at Olympus, where the scandal-tainted management has said it will not resign until an extraordinary shareholders' meeting in the latter half of April.
We haven't got a proper reply from Olympus's advisers to questions about the content of the operating plan they told us to submit, said a financial source close to one of the companies that has expressed interest.
Olympus President Shuichi Takayama has said that a decision on any major moves such as an equity tie-up would have to wait until the installation of new management after the April shareholders' meeting.
Separately, a group of shareholders are preparing a lawsuit against Olympus seeking more than 200 million yen ($2.6 million)in damages over the slide in its share price, a source familiar with the matter said on Monday.
($1 = 77.1200 Japanese yen)
(Additional reporting by Reiji Murai, Nobuhiro Kubo, Yoko Kubota and Tim Kelly; Writing by Edmund Klamann and Isabel Reynolds; Editing by Edwina Gibbs and Hans-Juergen Peters)