Dec. 22 (Bloomberg) -- Shares of Hoya Corp., Japan's largest optical-glass maker, rose after it agreed to buy Pentax Corp. to expand in the medical business. Pentax stock also advanced.

Hoya shares rose 1.3 percent to 4,570 yen at the 3 p.m. close in Tokyo, while Pentax gained 5.9 percent to 731 yen, the highest since May 2. Hoya will pay 0.158 of stock for each Pentax share, valuing the transaction at about 92.2 billion yen ($780 million) based today's price.

Hoya will gain access to Pentax's image-processing technology and sales channels to the medical industry, analysts said. The company may also benefit from increased spending on research and development and boost profitability because of reduced costs for materials, they said.

``Hoya's superior operation skills combined with Pentax's businesses open the door to unprecedented improvements in profitability,'' Kunihiko Kanno, a Credit Suisse analyst, wrote in a report dated yesterday. He rates Hoya ``outperform.''

The share swap will be conducted Oct. 1, 2007, the companies said yesterday. Hoya President Hiroshi Suzuki will become chief executive officer of the new company, Hoya Pentax HD Corp., while Pentax President Fumio Urano will be chairman, it said.

Pentax is aiming to almost triple profit margins to 10 percent in three years as it focuses on higher-margin single-lens reflex cameras and medical products such as endoscopes, surgical scissors and artificial bones, Urano said in a Dec. 4 interview. Hoya had a 29 percent operating profit margin in the six months ended Sept. 30.

Rival Earnings

Olympus Corp., the world's biggest maker of endoscopes used in intestinal examinations, on Nov. 7 reported operating profit at the medical business rose 11.1 percent to 39 billion yen, led by sales of the devices.

``Spending on research and development at Pentax is only one fifth of that at Olympus,'' Masahiro Nakanomyo, an analyst at Mitsubishi UFJ Securities Co. Ltd., wrote in a report today. ``Merging with Hoya, which is in better shape financially, may boost investment in research and development.''

The proportion of sales Pentax gets from the digital camera unit will decline to about 40 percent of revenue in three years, from 51 percent this year, Urano said. Sales of medical equipment will account for about 30 percent of the total in the same period, rising from 27 percent now, he said.

The company's shipments of SLR cameras will probably double to 600,000 units next fiscal year, helped by sales of cameras developed jointly with Samsung Electronics Co., Urano said earlier this month. The company expects camera shipments to more than double this year to 280,000 units, he said.

``The merger with Hoya will boost Pentax's SLR business as it will be able to procure optical materials at a cheaper price,'' Ryohei Takahashi, an analyst at Merrill Lynch & Co. in Tokyo, wrote in a report dated yesterday.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

Last Updated: December 22, 2006 01:11 EST