Panasonic Corp. and Sanyo Electric Co. formally announced merger talks last night, potentially opening the door to the creation of Japan's biggest consumer-electronics company.

The merged entity would also be the second-largest conglomerate after GE to have an electrical and electronics business.

In a joint statement, the companies said their respective boards had agreed to establish a working group to discuss a capital and business alliance under which Sanyo would become a subsidiary of Panasonic. A successful deal would be worth around $8 billion and result in Japan's biggest electronics maker and give Panasonic a bigger share of the fast-growing market for rechargeable and solar batteries.

"We aim to share both companies' management know-how and business resources while collaborating with each other, thereby creating a global competitive foundation which will maximize corporate values of both Panasonic and Sanyo and bring benefit for both companies' shareholders and all other stakeholders, including customers and employees," the statement said.

This effectively gives Panasonic, formerly known as Matsushita Electric Co., the green light to begin talks with Sanyo's three major shareholders: Sumitomo Mitsui Banking Corp., Daiwa Securities SMBC Co. and Goldman Sachs Group.

Sanyo has a market capitalisation about $3.8 billion. The three major investors in Sanyo purchased about 300 billion yen ($3.08 billion) of preferred shares in 2006, equivalent to about 70 per cent voting rights if converted into common stock.

"The partnership was expedited considering the business environment," said Sanyo president Seiichiro Sano.

Reports that Panasonic was mulling a merger with Sanyo first appeared last weekend (See: Panasonic in talks to acquire its rival, Sanyo), and yesterday's announcement marks the first acknowledgement confirming the talks. An update on the status of negotiations will be made public around the end of December, if a merger agreement hasn't already been reached.

Among benefits accruing to Panasonic arising from a merger would be a leading position in the fast-growing market for rechargeable battery technology. Sanyo holds about 30 per cent of the $6 billion global market for lithium-ion batteries. Merging Panasonic's battery operations with Sanyo's would dwarf Sony Corp's battery-making operations.

"The companies will be able to increase their competitiveness in areas such as batteries and energy-saving products," said Panasonic president Fumio Ohtsubo.

Sanyo has shed its wireless-phone manufacturing business and other underperforming divisions as part of an ongoing restructuring program. The Osaka-based company is still saddled with a number of divisions not performing up to expectations.

It reported its first annual net profit in four years in May after drastic streamlining. But its fortunes have taken a turn for the worse since then and the company said this week its quarterly profits plunged by two-thirds in the fiscal second quarter due to a stronger yen and sluggish sales.