Acquiring Stake and Power
Source: http://dealbook.nytimes.com/2012/09/28/sony-agrees-to-acquire-stake-in-olympus/?ref=business
As new companies merge and acquire stake in other companies, how can one predict who is going to have the most power at the end? The above article discusses two companies, Sony and Olympus, that have decided to team up after both seem to be struggling in their individual fields. After plunging in a downward spiral in the TV industry, Sony has been looking to broaden its horizon and find new and better industries to get involved in. One industry that Sony’s president, Kazuo Hirai, has expressed interest in and has made steps towards is the medical industry. He claims that there is a large source of revenue in this particular industry, and Sony has been making some moves towards recovery through this new market. Olympus has also been dealing with its own problems. Last year they admitted to hiding losses for over 10 years, leading to much loss of credibility, a new board of directors, and a $1.3 billion write-down. With both companies trying to reestablish themselves, Sony has agreed to become the biggest shareholder in Olympus, and eventually to start a new company between the two.
However, how do we know which one will have more power in the long run? Through the methods talked about in class, one could analyze which of these two companies will gain the upper hand over the other. One could think about this as a web with an edge just tied between two nodes, Sony and Olympus. When looking at just this picture, it appears as though they each would hold 50% of the power. However, one could write another node for Olympus. They have 70% of the world’s market for endoscopes, and one of the main conclusions of this new partnership is to make endoscopes. With this node only attached to Olympus, it would appear as though they have more power than Sony, because without this hold of the market, Sony would be powerless. However, Sony also brings something to the table. Sony has a “technological edge in digital imaging,” and Olympus’ president Hiroyuki Sasa admits that Sony will assist them in making certain medical devices that they previously were not capable of. This particular node, the node of technical expertise, can be drawn attached to Sony, so all of a sudden the power shifts back more centrally. In fact, without Sony, Olympus might not be able to compete in their field for very much longer if they are not able to come up with any new, innovative ideas, so if nothing else, Sony might have a slight power advantage over Olympus. This idea is reflected by the two companies as they are planning on making a new business between the two of them in which Sony controls 51% and Olympus controls 49%, not a very significant difference, but one that should be noted nonetheless.
Another thing that the two companies have discussed is combining efforts in making digital cameras. If they do decide to do this, I believe that this would shift the power more towards Sony. This is because, as described earlier, Sony is known in this particular relationship as having a large technological advantage in the area of digital imagery (digital cameras). Therefore, they really do not need Olympus to continue developing in this field and would not really gain from Olympus being in on this deal, but Olympus would gain enormously as they do not really have a hold on this industry compared to Sony. Another node is attached to Sony’s side, and the power shifts towards Sony.
Overall, I believe Sony will have more power after they have acquired stake in the company Olympus.
-mjk