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Sony and Olympus cut financial ties under activist pressure

Next step for joint medical equipment business up in the air

Kazuo Hirai and Hiroyuki Sasa, then-presidents of Sony and Olympus, attend a news conference in Tokyo in October 2012. The companies have unwound their capital partnership amid activist pressure.   © Reuters

TOKYO -- Sony has unloaded its remaining stake in business partner Olympus after a push by activist shareholder Daniel Loeb, raising questions over the future of their joint health care equipment business.

Sony sold its holdings for about 80 billion yen ($754 million), the company said Friday, as part of the stock buyback undertaken by Olympus.

With the latest sale, Sony has now received a total of 150 billion yen for its Olympus stake, acquired for 50 billion yen under a 2012 capital alliance. One domestic analyst praised Sony for its "effective" asset management strategy.

The sale also benefits Olympus, which is reviewing its portfolio and looks to strengthen governance after adding Robert Hale of U.S. activist fund ValueAct Capital Management to its board earlier this year.

Olympus has come a long way since 2012, when its capital ratio stood at a mere 2% due to a massive accounting scandal. The ratio has recovered to 45.8% today, allowing the camera and medical device maker to conduct a share repurchase.

Sony felt pressure after Loeb's U.S. hedge fund Third Point urged the company to spin off its semiconductor business and recommended other measures in a letter released in June. The Japanese group "could not completely ignore the recommendations," as a source close to Sony said, and it unloaded the Olympus stake as proposed.

The company previously aimed for 200 billion yen in sales through its health care equipment business by 2020, but scrapped that goal in 2017. "The figure was set before we launched the medical business, and was too optimistic," a senior executive acknowledged.

Sony and Olympus formed their health care equipment venture in 2013. Sony Olympus Medical Solutions, 51% owned by Sony, surpassed expectations by releasing two products in a short time, an official stressed, saying that the company has built expertise in developing medical equipment.

But an analyst said its actual business operations were lackluster. With the capital relationship gone, the partners need to demonstrate the significance of combining Sony's imaging technology and the medical device prowess of Olympus.

Tokyo investors cheered the stake sale on Friday, sending Olympus shares rising 7% at one point before closing the day up 6.8% at 1,244 yen.

"With Olympus stock on a general downtrend, the rebound [following the buyback] was greater than expected," said Yoshinori Ogawa at Okasan Securities.

Sony also closed with a 2.3% gain at 6,042 yen a share.

"After Sony did what was suggested by Third Point, speculation is growing that their dialogue will progress further," Ogawa said.

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