UPDATE 3-Terumo's proposal intensifies race for Olympus tie-up

Wed Jul 25, 2012 11:51pm EDT

* Terumo offers to invest $640 mln in Olympus, set up joint holding firm

* Olympus says weighing proposals from various firms

* Olympus shares jump as high as 10 pct, biggest 1-day gain in over 6 mths (Recasts, adds comments from analysts)

By James Topham and Mari Saito

TOKYO, July 26 (Reuters) - Japan's Terumo Corp announced on Thursday a proposal to invest 50 billion yen ($640 million) in capital-starved Olympus Corp, intensifying a race to join hands with the scandal-hit maker of cameras and endoscopes.

By taking the rare step of going public with its proposal, medical device maker Terumo appeared to be appealing to shareholders to steer Olympus away from a capital deal with Sony Corp. But analysts are unsure if the strategy will work.

Olympus is in final talks with Sony to get a roughly 50 billion yen capital injection in return for a stake, according to Japanese media reports. Terumo, as well as Fujifilm Holdings Corp, have already publicly said they are keen on an Olympus tie-up.

"(Terumo) going public with their plan and appealing to investors directly may backfire as Olympus management will think that they are bypassing them," said Toshiyuki Kanayama, senior market analyst at Monex Inc.

"Sony still appears to be in the lead and I'm sure Terumo was beginning to get nervous."

In response to the offer, which included forming a joint holding company, Olympus, which also makes medical devices, said it was carefully considering the proposal from Terumo, as well as other companies, and that no decision had been made.

Olympus shares soared as high as 10 percent in early Tokyo trade as investors cheered the proposal for the firm, which is facing pressure to raise capital to rebuild its balance sheet following a massive accounting scandal.

The single lens reflex camera maker admitted last year it used improper accounting to conceal huge investment losses under a scheme that began in the 1990s, after sacked British CEO Michael Woodford raised concerns last autumn about dubious book-keeping.

Olympus President Hiroyuki Sasa told Reuters last month he wants to boost the firm's shareholders' equity to 10 percent of its total assets as soon as possible, from 4.6 percent as of end-March.

To do so, the firm will need to secure some 50 billion yen in fresh capital.

CATHETERS OR CAMERAS?

A combined Olympus and Terumo, which owns a 2.5 percent stake in Olympus, would rank eighth in medical device sales worldwide, based on current figures, according to the Nikkei business daily, which first reported the story.

The lack of overlap between their mainstay medical products -- catheters for Terumo, endoscopes for Olympus -- also lends support to a tie-up between the two precision equipment makers, while Sony can offer support in digital cameras and through its fledgling medical business segment.

But with Sony booking a record net loss of $5.8 billion in its last fiscal year and embarking on a revival plan that includes significant job cuts and a move away from shrinking consumer electronics sectors into new areas like medical, it is also facing challenges.

"It's not clear how Sony can rebuild (Olympus') loss-making digital camera business and it has just entered the medical equipment market so it doesn't have much know-how in the area," said Takashi Oba, senior strategist at Okasan Securities.

Olympus shares, after jumping as much as 10.3 percent, stood at 1,383 yen, 9.3 percent higher at the mid-day break, outperforming a 0.3 percent rise in benchmark Nikkei 225 average. It was their biggest one-day gain since they rose about 20 percent on January 10.

Terumo shares dipped 1 percent, while Sony shares rose 2.1 percent. ($1 = 78.22 Japanese yen) (Additional reporting by Prateek Kumar in Bangalore, Hideyuki Sano and Chang-Ran Kim in Tokyo; Editing by Sreejiraj Eluvangal and Muralikumar Anantharaman)

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