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Panasonic has a history of tortuous acquisitions, but the Japanese conglomerate insists that the $7.1 billion acquisition of Blue Yonder is worthwhile because it will help solve its biggest weakness in software capabilities.
The sense of crisis that drove the Panasonic transaction is widespread among Japanese companies that have flourished in the era of consumer electronics hardware. But they have been struggling as global demand shifts to software and large technology companies such as Apple and Amazon are born.
Hitachi Agree to buy GlobalLogic, a Silicon Valley software engineering company, was acquired for US$9.5 billion.
“As everything becomes digitized, it becomes more and more difficult to distinguish through hardware,” Yasuyuki Higuchi, a Panasonic executive in charge of the connectivity solutions business, said in an interview. “Of course, we have a real sense of crisis, and we need to have software.”
The former CEO of Microsoft Japan business oversees and Acquired Blue Yonder Since Panasonic first acquired a 20% stake last year, he has been a member of the board of directors of this American supply chain software company.
After the deal was announced on April 23, the Tesla battery supplier’s stock price fell by 14%. Investors are discouraged by high prices and question whether the Japanese group’s management can manage such large-scale acquisitions in different industries.
Panasonic struggled with its two major acquisitions: in 1990 it acquired MCA, then the owner of Universal Pictures, for $6.6 billion, and in 2011 it acquired its smaller rival Sanyo Electric and another subsidiary for 800 billion yen.
Analysts also questioned the benefits of recent deals, including the US$1.6 billion acquisition of Hussmann, a US refrigerated display cabinet manufacturer in 2015.
Jefferies analyst Atul Goyal said in a recent report: “We believe that Panasonic has a poor track record, especially in the area of large transactions.”
Higuchi believes that the Blue Yonder transaction is different from the past because it is an investment in a software company with predictable and stable revenue. This American supply chain expert provides services to 3,000 companies including Coca-Cola and Walmart. Last year’s sales were $1 billion, of which 67% was recurring revenue.
“Because the recurring ratio is so high, most of their income is set to public utilities,” Higuchi said. “We also managed to retain the management, so the success rate is very high.”
Nevertheless, analysts still want to know that if Panasonic owns 20% of the shares, the two companies can do better under Panasonic’s full ownership, which the Japanese company cannot.
Blue Yonder’s corporate value has jumped from US$5.5 billion a year ago to US$8.5 billion, even though its revenue is basically flat. Over the past three years, operating profit margin has fallen from 10% to 1.7%.
Panasonic executives hope to expand Blue Yonder’s customer base in Japan and combine its security cameras and sensors with hardware from the US group to strengthen supply chain management.
Regardless of price, Citigroup analyst Kota Ezawa said that the latest acquisition solves some of the serious challenges facing Panasonic.
Ezawa said: “They need a regular business model, a large number of software assets, and portals and distribution channels to do business outside of Japan, so these are all necessary to survive the competition.”
“So it fills some gaps, but obviously this deal is not the full answer to how Panasonic switched to software and subscription services.”
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