Sanyo ADRs Gain Following Shareholder Approval of $2.6b Cash Infusion (SANYY, GS)

Includes: GS, SANYY
by: Steven Towns

Sanyo (SANYY) shareholders approved an "unavoidable" capital infusion from 3 investors: Goldman Sachs (GS), Sumitomo Mitsui Financial Group Inc. and Daiwa Securities SMBC. The three will invest a total of 300 billion yen (approx. US$2.6b) for preferred shares in the struggling Japanese CE firm that has been the worst performing stock on the Nikkei 225 Stock Average over the past two years. Bloomberg reported that the three will control 49.8 percent of Sanyo and five of nine board seats. The preferred shares can be converted to common stock at 70 yen per share, which is considerably less than the unchanged closing price today of 285 yen.

Although shareholders approved the deal, management got an ear full of complaints from shareholders criticizing them of having sold too cheaply and that the deal was unfair to current shareholders. The deal was deemed "unavoidable," as Sanyo had explained in an earlier announcement to shareholders that given the firm's heavy debt and poor future prospects that it could not secure favorable lending rates.

I have posted recently that I like the direction Sanyo is heading -- click here to see the post -- but my concern is of share dilution. I read in today's Wall Street Journal (print edition: C1 "Goldman Seeks Risky Japan Bets in Strategy Shift") that Goldman and the other two investors can't sell their holdings for a period of two years without Sanyo's approval.

Sanyo's ADRs (OTC:SANYY) traded as much as 4% higher today and were up 2.4% at the time of publishing this post.

For more details see these two articles:

* Sanyo gets much-needed cash infusion [IHT]

* Sanyo Shareholders Approve 300 Billion Yen Bailout (Update2) [Bloomberg]

SANYY 1-yr chart: