Will Sony Benefit From This Lucrative Alliance?

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While Sony (NYS: SNE) is suffering from losses in its television business and trying to gain traction by adopting a four-screen strategy, a new opportunity in the form of Olympus has come its way.

According to sources, Sony might acquire up to a 30% stake in Olympus, which provides industrial and health-care related imaging technologies, in a deal worth approximately $1.3 billion. But it might not be smooth sailing all the way as a scam unfolded at Olympus last year.

If an alliance does come through for Sony, what benefits would it attract?

What's in it for Sony?
Olympus has 70% global market share in the endoscope business. Sony, which already provides image sensors to Olympus, would benefit significantly by securing its supply contracts for imaging products and high-resolution displays for medical applications. The deal would also enable Sony to diversify into the lucrative health-care space.

However, Sony's investment in Olympus may not come without its share of hiccups. First, the deal has strong competition and second, the company's financial position is not at its best. Sony's competition for the Olympus acquisition includes Panasonic, Ricoh, and Cannon. But the two main contenders are Fujifilm and Terumo, a medical equipment manufacturer that already holds a 2.5% stake in Olympus.

Also, Sony has been incurring losses for the past three quarters and expects a decline in profit in its fourth quarter. At this juncture, an alliance with scam-tainted Olympus might prove too costly for the company.

To buy or not to buy
In November 2011, Olympus revealed a huge accounting scam of around $1.5 billion. The company concealed losses over a period of 13 years. This might be a deterrent for potential investors.

However, Olympus recently announced that it would go for a complete management shake-up. Given its highly profitable core area of business, the cash-strapped company continues to generate a lot of investment interest despite the dust-up. This may be a good bargain.

The Foolish bottom line
If the deal materializes, it would provide Olympus with the requisite funds and would give Sony an exposure to the health-care industry. It seems like a win-win situation.

Since more information on this is yet to be released, I would keep a close watch on Sony. You can do this by adding it to your watchlist. It is absolutely free and lets you stay on top of the latest news and analysis for your favorite companies.

At the time this article was published Keki Fatakia does not hold shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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