Panasonic, the Japanese electronics group, is expected to unveil plans to buy Sanyo, its smaller rival, this week in a deal aimed at creating a global “battery superpower” to dominate a future era of electric cars.

If the deal goes ahead, it will be the first significant M&A activity within the Japanese electronics industry — a sector viewed by investors as heavily overdue for consolidation if it is to compete seriously with players in Korea, China and beyond.

Sources close to the proposed deal told The Times that Panasonic was in negotiations to buy a controlling stake in Sanyo from the three leading banks that rescued the company from the brink of oblivion two years ago.

Panasonic's expected takeover bid would be part of the Osaka company's accelerating expansion drive, for which the company has already amassed a substantial cash war chest of about $10 billion (£6.2 billion).

By making Sanyo a subsidiary, Panasonic would not only secure leadership in the high-growth area of lithium-ion batteries, but would cement its position as Japan's largest electrical goods company. It is already the world's biggest producer of plasma televisions.

The trio of shareholders that owns the stake comprises Goldman Sachs, Sumitomo Mitsui Banking Corporation and Daiwa Securities SMBC. Although the three companies have consistently spoken of their long-term commitment to the Sanyo investment, rumours that they were looking for an industrial buyer have been swirling since early autumn.

At the sometimes aggressive instigation of the three banks, Sanyo has been cajoled into making itself a more viable takeover target. It was only within the past year that analysts began to view the company as worthy of investment because of its many divestments. As well as a series of management changes that effectively removed the founding family from the board, Sanyo has sold many non-core assets and re-fashioned itself as a battery and solar energy specialist.

But Sanyo, in common with its competitors, believes that the lithium-ion battery market is due for a phase of dramatic growth. Rechargeable batteries sell strongly into the portable electronics markets — digital cameras, MP3 players, laptops and handheld games — devices have helped to create a diverse selection of revenue streams. The technology continues to improve, however, and the use of lithium-ion batteries in cars and scooters is expected to soar as motorists around the world opt for a cheaper, greener alternative to the internal combustion engine.

Besides Panasonic, Sanyo's chief competitor in batteries is Sony, which could find its battery margins squeezed further if its two rivals merge.

Sanyo is also among the world's top ten players in photovoltaic (solar) technology, an area that analysts believe is likely to experience solid sales growth over the coming decade if China constructs the sort of sprawling solar farms it has envisaged. For all its product range size, Panasonic has virtually no solar technology in its portfolio.

Goldman Sachs and the two Japanese banks currently hold their stake in Sanyo in the form of preferred shares bought for Y300 billion (£1.8 billion) in 2006 and now worth about Y650 billion. Restrictions prevent the three banks converting their preferred shares into common stock until March next year, but if they did so, the combined stake would represent about 70 per cent of Sanyo. Sources said that a deal would therefore not be completed until next April.

The threat of global recession is looming heavily over the electronics industry. But Panasonic has demonstrated a rare resilience. Despite a 16 per cent drop in second quarter profits, it did not cut its full year forecasts or capital expenditure plans.

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