Posted by: Kenji Hall on December 26, 2007
At Sanyo Electric, it’s gone from bad to worse. The Japanese electronics and appliance company’s stock dropped to an 11-month low after yesterday’s announcement that the company had restated six years’ worth of earnings. Sanyo had previously alerted the market about the likelihood of a revision, so the 6 billion yen ($53 million) in unreported losses at the company’s subsidiaries and affiliates weren’t all that shocking.
The nasty surprise came later: After receiving Sanyo’s filing, the Tokyo Stock Exchange said it would consider delisting the company’s shares. Japan’s Securities and Exchange Surveillance Commission has recommended slapping the company with an 8.3-million-yen ($72,800) fine.
Ouch. Can it get any worse for struggling Sanyo? The company’s biggest investors, Goldman Sachs, Daiwa Securities and Sumitomo Mitsui Financial, will be praying for clear skies ahead. And chances are, this latest round of bad news is a sign that the company’s new management is finally getting its house in order after showing the last of the Iue dynasty, Toshimasa, the door in April. The Iue family—both former president Toshimasa and his father, Satoshi, who was formerly chairman and quit as an advisor earlier this year—bears much of the blame for running the company into the ground and resisting the painful decisions that might have left Sanyo in better shape by now.
Goldman, Daiwa and Sumitomo Mitsui are hoping the $2.6 billion lifeline they threw to the company last year won't go to waste. Last month Sanyo President Seiichiro Sano said they plan to stand by the company for another three more years. Maybe Sanyo's other investors will find some relief in that, though judging by the share price's precipitous dive today (down 10.7% vs. the Topix index's 0.8% uptick and the Nikkei 225 Average's 0.7% gain) it doesn't seem too promising at the moment. (Note to investors who can stomach the risk: Good luck finding a financial analyst in Tokyo who hasn't given up on Sanyo.)
Thankfully for Sano, the restated earnings are a thing of the past. They do little harm to the company's earnings outlook for this year, which is expected to be a profitable one. In November, the company forecast full-year net earnings would swing to a profit of $175 million on a 1% uptick in sales to nearly $20 billion. Last year, it racked up nearly $440 million in net losses.
No doubt Sano is getting some heavy coaching from his rich backers about what he can do to keep them from throwing in the towel. So far, Sanyo, the world's largest producer of rechargeable batteries, has said it will invest more than $3 billion in businesses that hold the most earnings potential, such as batteries for hybrid cars, solar-powered cells and electronics components. It's still trying to slim down after getting rid of a money-losing TV business and selling its leasing business to General Electric. In the coming months, it's expected to finalize the sale of its loss-making cell phone business to Kyocera. And though in October Sanyo gave up selling its semiconductor business, don't be surprised if it eventually persuades another taker, perhaps even a non-Japanese company, to take the badly hemorrhaging division off its hands. There's no quick fix here. The healing process could take years. The only question is, how long will Goldman et al.'s patience hold?