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The following information is true and accurate at the time of publication.
February 28, 2002
Accelerating Structural Reform of the Sony Group's Electronics Business
~ Enhancing group synergy as Aiwa becomes a wholly-owned subsidiary after reducing consolidated fixed costs to one third of present level ~
Sony Corporation
Aiwa Co., Ltd
Sony Corporation and Aiwa Co., Ltd. have reached an agreement whereby
Aiwa will become a wholly-owned subsidiary of Sony. After Aiwa has further
implemented corporate reforms, including reducing its consolidated fixed
costs to one third of their present level, a stock exchange* between Sony
and Aiwa is scheduled for October 1, 2002.
The consumer AV electronics industry has experienced a drastic period
of change, marked by commodification on a global scale, realignment of
the distribution sector as operations are centralized around major distributors,
and the emergence of China as a powerful manufacturing force. In this
context, Sony is accelerating the structural reform of its entire electronics
business, and will now position Aiwa as a wholly-owned subsidiary within
the Group. This will generate significant operational benefits. Furthermore,
the pursuit of group synergy through the strategic use of the Sony and
Aiwa brands will result in enhanced overall corporate value for the Group
as a whole.
* The stock exchange ratio is Sony 1:Aiwa 0.049. Please
refer to the attached document "Notice on Going Private of Aiwa Co., Ltd."
for details of the stock exchange.
- Background
Since April 2001, Aiwa has been engaged in a business reform plan
based on the assumption of an autonomous recovery as an independent
entity. Corporate restructuring has included a dramatic reduction
of fixed costs and asset streamlining through cuts in staffing levels
and rationalization of production facilities. In addition, there has
been a radical reduction in unprofitable product categories as well
as a concerted effort to develop new, profitable product groups.
Aiwa
has also received support from the Sony group in a number of ways
in order to strengthen its corporate resources. Assistance has been
given for business infrastructure development in the areas of materials
procurement, information systems and distribution as well as personnel.
On the fiscal side, Sony positively underwrote additional shareholder
allotments as well as the third party allocation of stock in summer
2001.
However, as Aiwa has previously announced, the company's projected
loss for this fiscal year (ending March 31, 2002) will exceed initial
projections made at the beginning of the year due to stagnant sales
and the disposal of non-performing and superfluous assets. This has
resulted in a deterioration of the company's shareholder equity, impeding
its ability to raise funds and further rationalize its operations.
The company also lacks strength in the digital technology and network
technology which will be the drivers of future growth. It has therefore
been determined that Aiwa's current form of independent management
will soon face significant difficulties in creating value for its
customers, shareholders, creditors, employees and other stakeholders
on a continued basis. In order to offer its stakeholders sustained
corporate value, Aiwa therefore decided to enhance the company's brand
value by achieving a more dynamic use of management resources through
further rationalization and through its becoming a wholly-owned subsidiary
of Sony.
- Reorganizing Sony's Electronics Business and Implications for Aiwa
Sony has engaged in an urgent review of its entire electronics business
strategy, recognizing that the issues facing Aiwa are issues with
implications for Sony's electronics business as well. The conclusion
has been reached that the present positioning of Aiwa as an independently
listed subsidiary with an autonomous management strategy is not suited
to the intensifying competition of the consumer AV market. Rather,
the Aiwa brand should be revitalized by combining the strengths of
the two companies' electronics operations, and building a completely
new revenue model. As the management structure is thus integrated
through Aiwa becoming a wholly owned subsidiary, the Sony group will
pursue a fundamental drive to improve the efficiency of its total
electronics business.
- Arrangements for Consolidation of Aiwa into a Full Subsidiary and
Future System
In order to further slim down its structure, Aiwa will reduce its
annual consolidated fixed costs to one third of their present level
(presently approx. ¥50 billion) by the time it becomes a wholly owned
subsidiary of Sony. Aiwa Co., Ltd. will reduce its employee count
to under two-thirds of the present level and will become the development
and design center for new Aiwa business for the Sony group. The production
and sales system will be integrated into both Sony's Engineering,
Manufacturing and Customer Services System (EMCS) and sales platform
for the optimal global mix across regions. The two companies will
discuss details on the most effective method of integrating their
operations from this point forward.
With Aiwa becoming a wholly-owned subsidiary of Sony, both companies
will strive to enhance total group efficiency and develop new business
areas. By strategically utilizing Aiwa brand products which have a
high penetration in markets around the world, new product categories
will be created in areas where the Sony brand does not participate
and the existing product lineup will be further strengthened. New
business opportunities will be created as the Sony group widens its
overall product strategy.
The sales system will also be revamped to adjust in a flexible and speedy manner to the sweeping changes that are taking place in the global distribution structure.
A distribution model of unparalleled competitiveness will be created based on the shortest possible supply chain with the minimum staffing levels, focused on key distributors.
Sony will energetically develop its competitive strategy by building on Aiwa's existing brand presence in markets, thereby aiming to strengthen the business of both companies. At the same time new product groups will be developed which truly satisfy the needs of customers and corporate resources will be further concentrated in realizing the Ubiquitous Value Network, which is at the heart of Sony's growth strategy. The result will be an acceleration in the creation of new added value for the entire group.
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