Sony to Make Ailing Aiwa Subsidiary

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[Toyko AP] Japanese electronics and entertainment giant Sony Corp. plans to buy the 39 percent of its money-losing affiliate Aiwa Co. it doesn’t already own and turn it into a wholly owned subsidiary by October, the companies said Thursday.

At a time when Japanese electronics makers have been hard hit by the global slump, keeping Aiwa as an independent audiovisual equipment-maker is no longer possible, Sony President Kunitake Ando said.

“In the past we have grown through competing with each other. This no longer works,” he told reporters.Aiwa, which lost more than 30 billion yen $224 million in the fiscal year ended in March 2001, has been a big laggard for Sony.

Over the years, Aiwa, founded in 1951, gradually fell behind the times in technology and was struggling to survive. Sony now owns a 61 percent stake in the company.

Making Aiwa a wholly owned subsidiary will be carried out by swapping each Aiwa share for 0.049 Sony share, or about 298 yen ($2.23) based on Thursday’s closing price.

Sony shares ended down 3.5 percent at 6,080 yen ($45.41) on the Tokyo Exchange. Aiwa shares were trading at 550 yen ($4.11), up 1.5 percent, when trading was suspended before the announcement.

Under the agreement, Aiwa must reduce its annual fixed costs totaling $373 million to a third of that amount, mostly by cutting its work force.

The restructuring effort, which also includes merging Aiwa’s sales and manufacturing operations with Sony’s, will cost Sony about $149 million to $224 million, the companies said.

Full ImageAiwa has already trimmed its global work force by several thousand over the past year. It will further cut its work force in Japan from 1,200 by at least a third, Aiwa President Masayoshi Morimoto said.

The company was still undecided on its 3,000 workers at manufacturing plants in Asia, he said.

“We realize this will mean more pain for our workers,” Morimoto said. “We must change Aiwa’s corporate culture.”

Japan’s electronics makers have all been trying to cut costs.

Sony’s rival Matsushita Electric Industrial Co., which makes the Panasonic brand, is turning its five group companies into wholly owned subsidiaries to avoid overlap in research and speed up product development.

Compared to its Japanese rivals, Sony has fared relatively well amid the global electronics downturn because of healthy revenue from its entertainment divisions, such as video games and music.

Friday’s agreement benefits both sides as Sony gains Aiwa as a “smart and affordable” brand and Aiwa can continue operating under Sony’s umbrella, the companies said.

Ando said Sony has been rethinking its strategy in retail to compete with cheaper products from South Korea and China.

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