Device giant Terumo seeks merger with Olympus

Olympus ($OCPNY)--the iconic camera company that also happens to be the world's largest endoscope maker--has become a highly sought-after property in the wake of a substantial accounting scandal made public late last year. Japanese devicemaker Terumo is proposing a merger with Olympus, following similar moves by Sony and Fujifilm, The Wall Street Journal and Bloomberg are reporting.

Olympus' discussions with Sony and Fujifilm have been ongoing, Olympus chairman Yasuyuki Kimoto revealed a few days ago. Panasonic was also rumored at one point to be mulling plans to become a major Olympus shareholder.

Terumo disclosed that it wants to form a committee with Olympus to discuss the establishment of a joint holding company for both operations, as well as a "capital tie-up" of about 50 billion yen ($639.7 million) that Terumo would commit to Olympus. Olympus is seeking that amount of capital in order to boost its finances in the wake of the $1.5 billion accounting scandal that Bloomberg notes eliminated $4 billion from Olympus' market value. Details of the proposal aren't public yet, but a Terumo spokesman told the WSJ that both firms would remain separate under the structure.

Both the WSJ and Bloomberg reports reveal that Terumo, a maker of blood transfusion systems, appears to have made the proposal in an apparent effort to counter Sony's leading bid. Terumo already owns 2.1% of Olympus and both work together on R&D projects involving medical devices and related materials, the WSJ story explains. A Terumo/Olympus combination offers good market strategy, according to the article, because separately Terumo ranks 12th and Olympus ranks 13th in terms of global medical equipment sales. Combined, they'd place closer to the top 5.

Naoki Fujiwara, chief fund manager at Shinkin Asset Management, also likes the idea of a Terumo/Olympus combo. He pointed out to Bloomberg that a bid to rival Sony will ultimately drive up Olympus' value, and that Terumo, if it wins out, can strengthen Olympus' medical device business. But Sony would also make a good fit, Fujiwara argued, helping Olympus rebound its camera business but also update its endoscope imaging technology.

Olympus controls 75% of the global market for endoscopy instruments.

- read the WSJ story (sub. req.)
- check out the Bloomberg piece

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