Konica Corp and Minolta Co plan to merge by August, joining forces as digital cameras made by Sony Corp and Taiwanese rivals erode their market share.
The merger, which may be worth as much as Japanese Yen 195 billion (US$1.6 billion) based on Minolta's market value and debt, would create a maker of cameras, printers and copiers that still only ranks fourth in domestic sales.
"It's a big question mark what kind of benefit" the merger will bring, said Yoshiya Morimoto, who helps manage Japanese Yen 30 billion (US$249 million) in equities at Japan Investment Trust Management Co and sold his Konica stake in December.
"Whether it's digital cameras or copy machines, neither Konica or Minolta has a competitive advantage," he said.
The popularity of digital cameras is eroding sales of traditional cameras and photographic film by Konica and Minolta, which don't rank among Japan's top-five digital camera makers.
Konica shares fell as the company is joining a rival that has suffered two years of losses and has half its market value. Minolta stock rose.
Konica President Fumio Iwai will head a holding company that will be formed by Konica and into which Minolta's operations will be merged, according to a joint statement distributed through the Tokyo Stock Exchange.
The new company will target joint sales of Japanese Yen 1.3 trillion ($US10.9 billion) by the end of March 2006. It plans to cut 4,000 jobs by 2005.
"Minolta will benefit on the financial side," said Seiichiro Iwamoto, who manages Japanese Yen 100 billion at Fuji Investment Management Co, and who doesn't hold shares of either company.
Minolta's shares rose 1.5 percent to close at Japanese Yen 536 on hopes the merger would help shore up its finances after losses in the past two fiscal years. Konica's shares closed down 0.8 percent at Japanese Yen 864.
Sales of Japan-made digital cameras surged 44 percent in the 11 months ended in November from a year ago, compared with a 27 percent decline for film-based cameras, according to the Tokyo-based Camera and Imaging Products Association.
The new company, with annual sales of Japanese Yen 1.05 trillion in the fiscal year ended March 31, would lag Canon Inc, Fuji Photo Film Co and Ricoh Co in Japan as a camera and copier maker.
Japan's electronics makers are joining together to fend off competition from lower-cost producers in South Korea and Taiwan such as Samsung Electronics Co and Acer Inc.
Hitachi Ltd and Mitsubishi Electric Corp, Japan's third- and fourth-largest chipmakers, will merge most of their semiconductor businesses in April.
Toshiba Corp and Matsushita Electric Industrial Co in April 2002 merged their liquid-crystal display businesses to reduce costs.
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