Sanyo: Caveat Emptor (SANYY)

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Includes: GS, NOK, SANYY
by: Steven Towns

I admit that I like the direction Sanyo (SANYY) is heading since Goldman Sachs (GS), Daiwa Securities SMBC Group, and Sumitomo Mitsui Banking Corp., stepped up as potential (and much needed) investors in the struggling Japanese CE company.

Yesterday's news of the Sanyo-Nokia (NYSE:NOK) cell phone venture was received rather warmly by the market as well. Sanyo's restructuring is starting to take form as it cuts costs, cuts production of unprofitable products and instead focuses on higher margin products in which it has core competencies. Sanyo's stock may treat you nicely if you are a trader. However, for investors, caveat emptor applies for no reason other than the 3 investors listed above. Think dilution.

Over the past several months I have posted now and then about my concerns of Sanyo's inevitable share dilution with the latest post here. Sanyo shareholders are getting ready to vote next week at an Extraordinary Meeting of Shareholders on this very issue. Since Sanyo cannot borrow at favorable rates it must issue new shares -- preferred shares -- in order to compensate Goldman, Daiwa, and Sumitomo for their 300 billion yen (approx. US$2.56b at Y117/US$1) capital investment expected to happen in March. See this recent announcement from Sanyo that explains the situation. Also be sure to read a report by Reuters that provides the most details I have seen regarding the "massive dilution."

SANYY 1-yr chart: