Can Sony Save Itself Through Olympus?

| About: Sony Corporation (SNE)

The Olympus scandal was one of the most shameful scandals in business history, but Sony (NYSE:SNE) may be able to use it as a lifeline.

Sony is picking up an 11.46% stake in the parent company for $645 million, which sounds steep, until you notice the two are also putting together a joint-venture, 51% owned by Sony, covering Olympus's (OTC:OCPNF) endoscopes, its most valuable product.

So don't look at it as $645 million for 11.46% of a failed company. Look at it as $645 million for a controlling interest in that company's crown jewels.

Unlike the consumer electronics where Sony made its name, medical devices are a high-margin business, and Olympus has a commanding position in that market. Sony can use the Olympus name to bring elements of its existing technology platform into the medical field, expanding that product line at relatively low cost, plus do something it's been having a tough time doing of late - make money.

Most reporters are focusing on this story as a lifeline for Olympus, whose previous managers may have hidden as much as $1.5 billion in losses through a long series of phony transactions and controlled acquisitions over many years. But it is also a lifeline to Sony, which picks up a profitable business, with good potential, at a very low cost.

Now if it can cash-out of its movie studio and music businesses, as it has left chemicals, find a profitable mobile niche in either Android or Windows Mobile gear, it gets the cash needed to develop a new game machine to expand an existing niche and, possibly, come out the other side.

It would be even better if Sony could find another deal or two like this, damaged goods with brand equity it can salvage, in Japan's battered tech sector.

Sony has assets, and it even has businesses that make money. Shareholders need to understand that, and not be panicked by bad news. If you're sitting on 70% losses going back five years you probably want to dump the stock, take the hit, and offset gains elsewhere in your portfolio for tax clean-up. But if you're sitting on the smaller 35% losses year-to-date, or some portion of those, CEO Kuzuo Hirai may have just shown you the endoscopic light at the end of the tunnel.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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