Panasonic Corp., SANYO Electric Co Ltd., Sony, Hitachi and Health Net

Panasonic Takes Over Sanyo

Panasonic Corp. (NYSE: PC) announced the acquisition of SANYO Electric Co Ltd. (OTC: SANYY), which will bring greater expertise in two areas – batteries for electric vehicles and solar panels. Sanyo is a leading company in the rechargeable battery business focused on lithium-ion rechargeable batteries. Panasonic is one of the leading manufacturers of electronic and electrical products, systems and components.

Panasonic said that it has completed the tender offer to acquire approximately 3.1 billion shares of SANYO (or more than 50% of the company’s total shares) for approximately $4.6 billion (403.8 billion yen). The tender offer was planned for Nov 5 through Dec 9 at a price of 131 yen per share. Panasonic will have 50.2% stake in Sanyo.

Panasonic had entered into a capital and business alliance agreement with SANYO in Dec 2008, which could not come into effect due to various regulatory hurdles from anti-monopoly authorities in the U.S., China and the European Union. The tender offer is expected to impact Panasonic’s business results for the fiscal year ending Mar 2010.

The energy business of SANYO will be added as Energy Solutions to Panasonic’s business, which will further expand its HIT (crystalline silicon) solar photovoltaic cells and modules (batteries) business and accelerate the development and commercialization of next-generation solar cells.

By taking over SANYO, Panasonic plans to double production capacity of lithium ion batteries to around 1 million units a year by the middle of 2010. Panasonic expects the alliance to result in a net profit growth of 80 billion yen in fiscal 2013. Panasonic and SANYO will also set up a ‘Collaboration Committee’, in which Panasonic will invest around 100 billion yen to generate synergies for both companies.

This acquisition will enable Panasonic to more aggressively compete with market leaders such as Sony (NYSE: SNE) and Hitachi (NYSE: HIT) amid growing demand for the rechargeable power source commonly used in mobile phones, laptop PCs and digital cameras. Moreover, it will help Panasonic become Japan’s largest maker of hybrid car batteries.

Health Net on a High

Health Net (NYSE: HNT) provided a strong outlook for 2010. The company expects earnings per share in the range of $2.30 to $2.40, higher than ours as well as the Street’s expectations. The guidance is based on the expectation that the pending sale of its Northeast businesses will close before year-end 2009.

Following the better than expected earnings guidance for next year, Health Net’s shares touched a 52-week high of $23.79. Based on a flat membership growth compared to 2009, Health Net expects revenues in the range of $13- $13.5 billion.

We are pleased with the strong guidance, especially in a situation when high medical costs have forced Health Net to lower its 2009 outlook post third quarter results. The company now expects 2009 earnings per share in the range of $2.25 − $2.30 compared to the earlier guidance of $2.25 − $2.35. Although we were disappointed, we believe the current environment has forced the company to lower its outlook − higher costs related to the spread of H1N1 virus and expansion of COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) membership by laid-off workers. Under COBRA, people can continue their employer sponsored insurance coverage even after they lose their jobs.

In addition to providing a strong outlook for 2010, Health Net announced the resumption of the stock repurchase program. The company used to follow a liberal policy of repurchasing shares to enhance shareholder value. Health Net has a $700 million stock repurchase program authorized by the Board of Directors.

At the end of the third quarter of 2009, about $103.3 million of stock repurchase authorization remained. The company had decided to put this program on hold in Nov 2008 due to the uncertain financial environment. We had earlier expected that a recovery in the economic scenario will make Health Net withdraw its decision.

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