TOKYO, Oct 17 (Reuters) Sanyo Electric Co Ltd has given up on the sale of its microchip unit after private equity buyer Advantage Partners LLP failed to secure funds for the deal amid tight credit markets, dealing a blow to its share price.
The planned sale was a symbol of Sanyo's efforts to shed struggling units and focus on profitable ones, such as its batteries business, under the eye of shareholder Goldman Sachs That strategy looked less certain after the deal sank.
''We decided not to sell the semiconductor business, and instead we will nurture it as one of core businesses in our components division,'' Sanyo said in a statement.
Shares in Sanyo, the world's largest maker of rechargeable batteries, were down 7.1 percent at 182 yen by midday. They underperformed the Tokyo stock market's electrical machinery index IELEC, which fell 0.66 percent.
''Their original plan was to take the cash from the sale and put it in profitable businesses. That plan is derailed at least for now,'' said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
However, Akino believes Sanyo will ultimately stick to its strategy of focusing on core operations and will sell the semiconductor unit eventually.
Advantage Partners, a Japanese fund, had earlier this year gained priority negotiating rights to buy Sanyo Semiconductor Co, outbidding other buyout funds with an offer above 100 billion yen ($855 million).
But Advantage Partners has faced difficulty in raising funds for the acquisition amid a tightening of credit stemming from the U.S. subprime mortgage crisis, financial sources said. Reuters reported last month that Advantage would have difficulty levering the deal One of the banks Advantage engaged to raise funds, Citigroup , was cautious about its ability to syndicate any loans to other banks and had told Advantage it would only underwrite the deal on a 'best efforts' basis, the sources said.
On October 15, Advantage's deadline to secure funds, Citigroup said that its third-quarter profit fell 57 percent as losses mounted from subprime and leveraged loans, fixed-income trading and its U.S. consumer business.
Another of the banks Advantage approached to provide funds, Merrill Lynch, has also been hit by the credit crisis. On October 5, Merrill said it would write down $5.5 billion for bad bets on subprime mortgages and leveraged loans.
Osaka-based Sanyo spun off the chip-making business last year in a move widely seen as a prelude to selling it. The unit posted 181.27 billion yen in sales in the year ended March, and squeaked out an operating profit of 4 billion yen.
The unit has been floundering since a major earthquake in 2004 hit its factory in northwest Japan, ruining equipment and causing customer flight.
Sanyo's rechargeable batteries business has been more successful. Its lithium-ion batteries are used in four of every 10 mobile phones in the world.
As a group, Sanyo Electric has lost about $3.6 billion over the past three business years, hit by the chip unit's woes and sluggish sales of core electronics products such as digital cameras and mobile phones.
REUTERS SI HS1556