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  6. Notice on Conversion of PFU into Wholly Owned Subsidiary

Notice on Conversion of PFU into Wholly Owned Subsidiary

Fujitsu Limited,PFU Limited

Tokyo, January 29, 2010

Fujitsu Limited (“Fujitsu”) and PFU Limited (“PFU”) announced today that they have concluded an agreement to convert PFU into a wholly owned subsidiary of Fujitsu through an exchange of shares. The agreement was approved today at meetings of the boards of directors of both companies.

PFU will seek approval of the exchange of shares at an extraordinary shareholders’ meeting scheduled for February 20, 2010. Following approval, the companies plan to carry out the exchange of shares on April 1, 2010. Fujitsu plans to carry out a simple exchange of shares, which, according to Article 796, Clause 3 of Japan’s Company Law, does not require the approval of shareholders at the company’s shareholders’ meeting.

Details on the planned exchange of shares are as follows.

1. Purpose of Converting PFU into Wholly Owned Subsidiary

(1)Purpose of Exchange of Shares

The IT industry’s business environment continues to change at a rapid pace. In recent years, amid a global economic recession, companies have restrained their IT investment and have sought lower-cost IT solutions. At the same time, cloud computing and other new models of providing IT services and solutions have emerged and have gained wide interest.

In this business environment, it is important for Fujitsu to continually grasp and respond to market changes and the diversifying needs of our customers to ensure future growth. From a management perspective, in seeking to offer optimal products and services, it is necessary to combine the know-how and capabilities of the Fujitsu Group companies and create new value for customers.

Additionally, Fujitsu recognizes the strong growth potential of markets outside Japan and is actively expanding its business around the world under an integrated global strategy which carefully manages consolidated assets and resources.

PFU has a greater than 50% share of the global image scanner market. In Japan, PFU has a range of competitive IT products, with the top share of the kiosk terminal market. It has also established a strong position in product-related solutions and services, and has developed know-how in the multi-vendor system integration and maintenance fields.

Similarly, Fujitsu is expanding its business globally through both IT services and products, and provides multi-vendor IT services to meet the complete needs of clients in the open-systems era.

Recognizing the potential synergy of combining the two companies’ capabilities to provide optimal services and products as well as expand business globally, the boards of directors of both companies decided to make PFU a wholly owned subsidiary of Fujitsu.

Over the years, PFU has received strong support from Uchida Yoko Co., Ltd. and other shareholders, which has enabled the company to grow and succeed to the extent it has today. As the business environment continues to change, and client needs continue to evolve and diversify, PFU will pursue its business as a 100% subsidiary of Fujitsu, maximizing synergy with other Fujitsu Group companies to facilitate growth. Specific initiatives are explained below.

① Reinforce global image scanner business

PFU currently enjoys the top share of the global image scanner market, and Fujitsu intends on further strengthening this position by consolidating the group-wide scanner capabilities in PFU. In EMEA, PFU took charge of the image scanner business on November 1, 2009, and in North America, discussions have begun on consolidating the business at PFU. Going forward, Fujitsu plans to consider a similar structure for China and Southeast Asia. Once PFU becomes a wholly owned subsidiary, Fujitsu will actively pursue the necessary structural improvements in various regions to unify the image scanner production and sales functions globally, accelerate decision-making and product launch, and strengthen relations with sales partners.

In Japan, Fujitsu also plans on using the new structure to strengthen relations with partners, as well as to expand the Fujitsu Group’s presence in enterprise contents management (ECM) and other markets, using the image scanner products as core solutions.

② Build optimal Fujitsu Group structure for the open-systems, cloud computing era

Companies have embraced open-architecture systems, and in the future, they are expected to adopt cloud computing-based solutions. The Fujitsu Group is responding to these trends by transforming its business model and by optimizing its corporate structure. In the process of this transformation, the assets and product/service portfolios of group companies will be reviewed, enhanced, and consolidated where necessary.

PFU has been a forerunner in providing IT infrastructure systems using multi-vendor networking products, along with multi-vendor services for the maintenance of open IT systems, Linux and other open-system tools, and platform virtualization services. Though PFU has developed this expertise largely on its own, it will be difficult for the company to develop a growth strategy for the cloud-computing era on its own.

In the future, PFU will be the Fujitsu Group’s lead provider of multi-vendor services, virtualization services and other IT services for which it has a distinctive competency. This structure is expected to generate strong synergies and enhance the overall competitiveness of the Fujitsu Group in these areas.

③ Expand new business opportunities

Fujitsu offers a wide range of IT services, while PFU offers unique IT products and product-based solutions and services. These respective strengths will be combined to create new business opportunities. For example, in Japan, Fujitsu offers FENICS II Universal Connect network services to build secure and trusted internal networks for companies, along with highly secure cloud-computing datacenter services. These services can be combined with PFU’s image scanners and kiosk products to create new solutions for customers. Fujitsu and PFU will also jointly pursue opportunities for new business that combines FENICS II and PFU terminals employing integrated computer development technologies, along with joint development of IP-COM network servers and other products.

PFU will maintain its management independence even after becoming a wholly owned subsidiary of Fujitsu, and its corporate name will remain the same. Areas where PFU has established a strong competency—buisness management practices, product manufacturing technologies, global business approach, and other areas—will be maintained and leveraged to raise the value of the Fujitsu Group.

Through this conversion, Fujitsu intends on strengthening the group as a whole, and will strive to meet the expectations of the current PFU shareholders when they become Fujitsu shareholders after the conversion.

(2) Measures to Guarantee Fairness

Since Fujitsu owns 78.59% of the shareholder voting rights of PFU, both Fujitsu and PFU have separately asked independent third parties to calculate the share exchange ratio in order to maintain fairness and appropriateness. Based on the results of the calculations, Fujitsu and PFU negotiated the contract on the exchange of shares. The boards of directors of the companies have approved the agreed upon share exchange ratio.

Fujitsu and PFU have not requested a fairness opinion from an independent third-party organization regarding the fairness of the share exchange ratio.

(3) Measures to Prevent a Conflict of Interest

One non-statutory member of the board of PFU also serves as a member of the board of Fujitsu, and one outside auditor of PFU also serves as corporate executive officer of Fujitsu. To avoid a conflict of interest, these two individuals did not attend the meeting of the board of directors of PFU to decide on the exchange of shares.

2. Exchange of Shares

(1) Schedule

January 29, 2010 Board of directors meetings approving exchange (Fujitsu/PFU)
January 29, 2010 Contract on exchange of shares finalized (Fujitsu/PFU)
February 20, 2010 (tentative) Shareholders’ meeting to approve exchange (PFU)
April 1, 2010 (tentative) Exchange of shares (effective date)

Notes:

1. According to Article 796, Clause 3 of the Company Law, Fujitsu is not required to have the contract on the exchange of shares approved at its shareholders’ meeting.

2. The effective date is subject to change based on the agreement of Fujitsu and PFU.

(2) Share exchange ratio

  Fujitsu
(Parent company)
PFU
(Wholly owned subsidiary)
Allotment of shares from share exchange 1 44.70
Total number of Fujitsu shares to be allotted in exchange 21,214,485 shares of Fujitsu common stock

Notes:

1. Allotment ratio

Under the contract, 44.70 shares of Fujitsu common stock will be allotted for each share of PFU common stock. Fujitsu will not exchange shares for the 1,742,546 shares of PFU it already owns.

2. Number of shares allotted in the share exchange

With respect to 21,214,485 shares of Fujitsu common stock to be allotted in exchange, Fujitsu plans to use treasury stock (4,467,888 shares held as of December 31, 2009) and shares to be aquired by the effective date of the exchange to carry out the exchange of shares. Therefore, Fujitsu does not plan to newly issue shares to complete this exchange of shares.

Fujitsu will announce separately the plan to acquire its own shares.

In the event that a PFU shareholder objects to the exchange of shares and requests PFU to repurchase its shareholdings, PFU will repurchase the shares from the shareholder and retire the shares on the same day, and therefore the number of the shares to be allotted in the share exchange may be revised prior to the effective date.

3. Fractional lot

In the event the exchange of shares creates fractional lots which do not equal one share of Fujitsu stock, in accordance with Article 234 of the Company Law, Fujitsu’s board of directors will resolve to purchase the fractional lots at the closing price on the Tokyo Stock Exchange’s First Section on the effective date of the exchange of shares, and allot the funds to the respective shareholders.

4. Odd-lot shares

As a result of the exchange of shares, PFU shareholders will be allotted odd-lot shares of Fujitsu stock amounting to less than a trading unit of 1,000 shares on the effective date of the exchange. In accordance with the Company Law and Fujitsu’s articles of incorporation, Fujitsu may take the following measures.

(a) Odd-lot share purchasing system (for shareholders to sell odd-lot shares of less than a 1,000-share unit)

In accordance with Article 192, Clause 1 of the Company Law, Fujitsu will directly purchase from shareholders blocks of its shares amounting to less than a trading unit of 1,000, which cannot be traded on the market.

(b) Share increase system (for shareholders to purchase additional shares to increase shares to a trading unit of 1,000 shares)

In accordance with Article 194, Clause 1 of the Company Law, shareholders may purchase shares from Fujitsu to increase their odd-lot shares to a full trading unit of 1,000 shares.

(3) Approach to Calculating the Share Exchange Ratio

① Basis and Process Used in the Calculation

To ensure that the share exchange ratio used in this share exchange was fair and appropriate, Fujitsu and PFU each retained the services of independent advisors to calculate the share exchange ratio. Fujitsu retained the services of Mizuho Securities Co., Ltd. (“Mizuho Securities”) and PFU retained the services of Nikko Cordial Securities Inc. ("Nikko Cordial Securities").

To calculate the value of Fujitsu shares, Mizuho Securities used market share price analysis. To calculate the value of PFU shares, Mizuho Securities used discounted cash flow analysis (“DCF analysis”), and comparable companies analysis. In accordance with these valuation methods, the number of Fujitsu shares to be allocated per share of PFU was calculated as follows: using DCF analysis, between 42.50 shares and 50.24 shares; and using comparable companies analysis, between 38.69 shares and 47.79 shares.

In applying market share price analysis, average stock prices were calculated for the following periods: the closing price on January 20, 2010; the one-month period from December 21, 2009 to January 20, 2010; the three-month period from October 21, 2009 to January 20, 2010; and the six-month period from July 21, 2009 to January 20, 2010.

Note: Mizuho Securities has prepared its share exchange ratio estimations on the assumption that the information received from Fujitsu and PFU and publicly available data used to make the estimations are accurate and complete, that there is no information that Fujitsu and PFU have not provided that would have a significant impact on the calculation of the share exchange ratio, and other assumptions. Mizuho Securities has not conducted an independent assessment of the value of the assets or liabilities of Fujitsu, PFU or their affiliates. In addition, with regard to PFU’s financial forecasts, the estimations assume that these are best-effort forecasts as of the date the forecasts were made. The share exchange ratio stimulations reflect the corporate data and economic condition information available as of January 20, 2010.

Nikko Cordial Securities performed market share price analysis with respect to Fujitsu, and performed DCF analysis and comparable companies analysis with respect to PFU. In accordance with these valuation methods, the number of Fujitsu shares to be allocated per share of PFU was calculated as follows: using DCF analysis, between 41.68 shares and 51.43 shares; and using comparable companies analysis, between 32.11 shares and 44.24 shares.

Market share price analysis is based on the average closing price between December 21, 2009 and January 20, 2010; and between October 29, 2009 (the day following the announcement of the second quarter financial results) and January 20, 2010.

Note: In preparing its share exchange ratio estimations, Nikko Cordial Securities has not conducted an independent evaluation or appraisal of the assets and liabilities of Fujitsu or PFU, nor has it received appraisals from a certified public accountant or other independent third-party specialist. The estimations are based on the assumption that the various information and documents used to make the estimations are accurate and complete, and that the future business plans and financial forecasts of PFU were created on a best-effort basis as of the time the forecasts were made. In addition, the estimations are based on the assumption that there is no information that has not been disclosed by Fujitsu or PFU that would have a significant impact on the estimations of the share exchange ratio.

Fujitsu and PFU have carefully reviewed the results of the analysis and advice provided by the independent third parties. In addition, considering such factors as capital ties between Fujitsu and PFU, the exchange ratio of previous share exchanges of a similar nature, and each company's financial condition, and after negotiations and discussions, the share exchange ratio recorded above in section 2. (2) was applied and deemed to be in the best interest of each company's shareholders. At their respective boards of directors meetings held on January 29, 2010, the share exchange ratio for the exchange of shares was decided upon, and the two companies executed the share exchange contract the same day.

The share exchange ratio is subject to change by the mutual agreement of Fujitsu and PFU if there are any significant changes in the terms and conditions underlying the calculations.

② Relationships with Firms Used to Perform the Calculations

Neither Mizuho Securities nor Nikko Cordial Securities are considered a related party to Fujitsu or PFU.

(4) Treatment of Share Warrants and Bonds with Warrants Attached Issued by Wholly Owned Subsidiary Involved in Share Exchange

PFU has not issued any share warrants or bonds with warrant attached.

3. Summary Information on Companies Exchanging Shares
(As of March 31, 2009)

(1) Trade Name Fujitsu Limited (Consolidated)
(Company becoming wholly owning parent company)
PFU Limited (Consolidated)
(Company becoming wholly owned subsidiary)
(2) Principal Lines of Business Development, manufacture, sales and service of products in the fields of software and services, information processing, telecommunications equipment and electronic devices Development, manufacture, sales of computer-related equipment and software, and provision of IT services
(3) Date of Incorporation June 1935 May 1962
(4) Registered Head Office 4-1-1 Kamikodanaka, Nakahara-ku, Kawasaki-shi, Kanagawa, Japan Nu 98-2 Unoke, Kahoku-shi, Ishikawa Prefecture, Japan
(5) Representative Michiyoshi Mazuka, Chairman and President Fujio Wajima, President
(6) Capitalization 324,625 million yen 4,980 million yen
(7) Shares Issued 2,070,018,213 shares 2,217,143 shares
(8) Net Assets (Consolidated) 925,602 million yen 62,936 million yen
(9) Total Assets (Consolidated) 3,221,982 million yen 91,247 million yen
(10) Fiscal Year-End March 31 March 31
(11) Employees (Consolidated) 165,612 4,177
(12) Major Customers Central government agencies, telecommunication carriers, manufacturers, distributors, and financial institutions Manufacturers, distributors information service providers, financial services companies
(13) Principal Shareholders and Ownership as of March 31, 2009 Japan Trustee Services Bank, Ltd. (for trust 4G) 5.94% Fujitsu Limited 78.59%
The Master Trust Bank of Japan, Ltd. (for trust) 5.42% Uchida Yoko Co., Ltd. 16.31%
Japan Trustee Services Bank, Ltd. (for trust) 4.86% PFU Employee Shareholders’ Association 0.57%
Fuji Electric Holdings Co., Ltd. 4.58% Kazuo Teramoto 0.25%
State Street Bank and Trust Company 4.11% Reiko Miyatani 0.16%
(14) Major Banks Mizuho Corporate Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corp.
Sumitomo Mitsui Banking Corp.
--
(15) Relationship Between the Parties Capital Fujitsu owns 78.59% of PFU’s voting rights.
Personnel One non-statutory member of the board of PFU also serves as a member of the board of Fujitsu, and one outside auditor of PFU also serves as corporate executive officer of Fujitsu.
Business 16.2% of PFU’s inventories (equivalent to 12.6 billion yen as of March 31, 2009) is for Fujitsu.
Status PFU is a consolidated subsidiary of Fujitsu.
(16) Financial Results for the Three Most Recent Fiscal Years (Consolidated)
  Fujitsu Limited
(becoming wholly owning parent company)
(billion yen, except per share data)
PFU Limited
(becoming wholly owned subsidiary)
(unconsolidated) (billion yen, except per share data)
Fiscal Year Ended March 2007 March 2008 March 2009 March 2007 March 2008 March 2009
Net Sales 5,100.1 5,330.8 4,692.9 104.8 116.4 101.2
Operating Income (Loss) 182.0 204.9 68.7 4.4 6.3 3.2
Ordinary Profit (Loss) 147.2 162.8 15.0 4.1 6.1 2.3
Net Income (Loss) 102.4 48.1 (112.3) 1.9 2.2 1.4
Net Income (Loss) per Share [Yen] 49.54 23.34 (54.35) 893.04 1,015.57 664.25
Annual Dividend per Share [Yen] 6 8 8 500 500 500
Net Assets per Share [Yen] 469.02 458.31 362.30 26,596.44 27,081.28 27,230.20

Note: PFU did not create consolidated financial statements prior to the fiscal year ending March 2008, and therefore the financial information for prior years represents PFU unconsolidated results.

4. Situation Following Exchange of Shares

(1) Trade Name Fujitsu Limited
(2) Principal Lines of Business Development, manufacture, sales and service of products in the fields of software and services, information processing, telecommunications equipment and electronic devices
(3) Registered Head Office 4-1-1 Kamikodanaka, Nakahara-ku, Kawasaki-shi, Kanagawa, Japan
(4) Representative Michiyoshi Mazuka, Chairman and President
(5) Capitalization 324,625 million yen
(6) Total Assets (Consolidated) 3,221,982 million yen
(7) Net Assets (Consolidated) 925,602 million yen
(8) Fiscal Year-End March 31
(9) Summary of Accounting Procedure This transaction is expected to fall under the category of transaction with minority shareholders of the entity under common control. Negative goodwill is expected to be generated in conjunction with this transaction. Although the amount of negative goodwill has not yet been determined, it is estimated to be small.
(10) Impact on Financial Results As PFU is already a consolidated subsidiary of Fujitsu, the share exchange is expected to have negligible effect on both consolidated and unconsolidated operating results for the year ended March 31, 2011.


About Fujitsu

Fujitsu is a leading provider of IT-based business solutions for the global marketplace. With approximately 175,000 employees supporting customers in 70 countries, Fujitsu combines a worldwide corps of systems and services experts with highly reliable computing and communications products and advanced microelectronics to deliver added value to customers. Headquartered in Tokyo, Fujitsu Limited (TSE:6702) reported consolidated revenues of 4.6 trillion yen (US$47 billion) for the fiscal year ended March 31, 2009. For more information, please see: www.fujitsu.com.

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All other company or product names mentioned herein are trademarks or registered trademarks of their respective owners. Information provided in this press release is accurate at time of publication and is subject to change without advance notice.

Date: 29 January, 2010
City: Tokyo
Company: Fujitsu Limited