Sony and Olympus have agreed on a business alliance that will see Sony invest 50 billion yen ($640 million) for an 11 percent stake in the medical equipment and camera company.

The deal was widely expected as Sony president Kazuo Hirai had expressed interest in such a move as part of a turnaround at the Japanese electronics and entertainment company.

The two companies said they will set up a company together later this year, 51 percent owned by Sony and the rest by Olympus, to work on new businesses.

"As part of our strategic initiatives announced in April 2012, we are aggressively pursuing the growth of of our medical business, with the aim of developing it into a key pillar overall business portofolio. The business and capital alliances we have agreed with Olympus today will be integral to these plans. By combining Sony's cutting-edge technologies in areas such as digital imaging, 3D and 4K with Olympus's long-standing experience and established foundations in the medical market, we believe that will be able to create highly innovative and competitive products and generate new business opportunities in surgical endoscopes and other related areas where significant future growth is anticipated. We also believe there are many potential opportunities for collaboration between Olympus and Sony's digital camera businesses, and are confident that by building on our respective strengths we can also enhance and grow presence in thi are confident that by building on our respective strengths we can also enhance and grow presence in thi are confident that by building on our respective strengths we can also enhance and grow presence in this market," commented Kazuo Hirai, Sony Corporation President and CEO.

Sony will buy an 11.46 percent stake in Olympus and become its largest shareholder in two tranches. In the first, to be done by Oct. 23, Japan's biggest consumer-electronics exporter will purchase 13.1 million shares at 1,454 yen apiece, costing 19 billion yen. In the second tranche, Sony will buy 21.3 million shares at the same price, costing 31 billion yen. This will be completed by Feb. 28.