CORRECT: Olympus' Medical Business Could Make It Attractive Takeover Target

With Olympus Corp. (7733.TO) embroiled in scandal and facing the biggest challenge in its 92-year history that has wiped out about two-thirds of its market value since mid-October, its position as one of the world's top makers of endoscopes and cameras could make it an attractive acquisition target, industry observers say.

"Assuming that the fundamental business doesn't change, regardless of whatever happens to management, we believe Olympus could be an attractive acquisition target," said Nanako Imazu, an analyst at CLSA Research, in a recent report, noting that many companies would like to enter the lucrative medical-equipment business.

Analysts say Olympus' endoscope business is extremely valuable on a global scale, given the variety of its product types. It has a dominant market share in endoscopes--a device with a light attached used to look inside a body cavity or organ. Olympus accounts for roughly 70%-80% of the global market, according to industry experts.

"Their operations are definitely attractive for rivals who want to boost profits in the medical equipment business," said an analyst at Japanese brokerage firm.

Japanese firms such as Hoya Corp.(7741.TO), the owner of Pentax-brand cameras, Fujifilm Holdings Corp. (4901.TO), or even a foreign competitor such as Johnson & Johnson (JNJ) of the U.S., could be potential buyers, the analyst said.

Starting in the microscope and thermometer business, Olympus went on to develop microscopes into gastro cameras, a predecessor to the endoscope in 1950s.

While the company's medical business has been profitable, its imaging division, which includes digital cameras, made a loss in the past year. For the last fiscal year ended March, the medical business generated Y355.3 billion in sales, more than a half the total.

A niche business like endoscopes will likely be less vulnerable to the kind of scandal currently embroiling the company, as the product's main users--doctors--can't change products easily, noted Kougo Horie at Daiwa Securities Capital Markets.

Yuta Ishinoda, an analyst at Rating & Investment Information Inc. said Olympus could become an acquisition target since its business--particularly the medical business--is still healthy, despite all the financial problems.

Yet the company's current situation will still likely give potential bidders second thoughts about buying it immediately, analysts say.

"At this point, we don't know how Olympus' balance sheet will turn out," an analyst said, adding that potential candidates will likely have to take over its debts, the size of which are currently unknown.

Amid the uncertainty over the company's future, one scenario could be for it to spin off and sell unprofitable, non-core assets, one banker said. He cited the case of Sanyo Electric Co., now a subsidiary of Panasonic Corp. (6752.TO), which went through several rounds of restructuring, including the sale of non-core businesses.

-By Atsuko Fukase, Dow Jones Newswires; 813-6269-2792; [e-mail]