Not so long ago, Panasonic had some plans in the works to focus on the healthcare market and get out of several other markets that weren't producing sufficiently desirable results for the company, which led to the shutdown of development on a handheld gaming device known as the Jungle that Panasonic was developing at the time. But this strategy seems to have paid off for Panasonic, and given private-equity titan KKR its biggest deal in Japan, as Panasonic has agreed to sell its healthcare arm to KKR.
The deal, at last report, was valued at 165 billion yen (around $1.68 billion U.S.), and gives KKR an 80 percent ownership stake in Panasonic Healthcare, while Panasonic itself would own the remaining 20 percent. The deal is set to close in March of 2014, and some believe that this could be the start of a larger trend that brings new life into Japan's private equity market. It certainly doesn't hurt that share prices have been on the rise of late, at last report, and Japanese companies are increasingly willing to shed assets that aren't offering the kind of return that companies would like.
Many, like Shearman & Sterling LLP partner and M&A expert Kenneth Lebrun, believe that this could be the start of something great for both Japan and outside interests. Lebrun noted that major Japanese companies have a variety of assets not really related to core business that should have been divested, and thanks to a measure like this, may provide the necessary justification to step up such processes. Indeed, Lebrun further notes that such opportunities may be widespread, as “almost any industry” in Japan has such companies with “non-core assets” worth divesting.
Panasonic has been in a state of flux for some time now, with recent efforts on new hire Kazuhiro Tsuga looking to change Panasonic over from consumer electronics to more industrial fare, part of which included the shutdown of the Jungle handheld device. But well beyond the Jungle, Panasonic also stepped back on the production of televisions, stopped producing consumer smartphones, and setting up a partnership with Fujitsu to spin off its work in chip manufacture.
The healthcare business was proving profitable—if somewhat flat with high margins—for Panasonic, at last report, but Tsuga was looking for a way to get in some fresh capital as well as some new expertise, giving the healthcare arm a little extra help along the way.
This actually would seem to work out well for all concerned. Panasonic gets some extra operating profit—always the kind of thing that shareholders want to see—and KKR gets a large piece of a functional and profitable healthcare enterprise that's already got some big names to its credit, including a line of blood glucose monitoring sensors.
Indeed, reports suggest that Panasonic's healthcare unit pulled in nearly as much in sales last year as KKR paid for the company itself, bringing in 134.3 billion yen (around $1.37 billion U.S.). Clearly, there's a lot of potential here, and a lot of room for KKR to take the ball and run with it. But only time will tell if this measure proves to be a long term success for KKR and Panasonic.
Edited by
Alisen Downey
