In a widely flagged deal, Sony said in a release that it will hold an 11.46 percent stake after buying new shares issued by Olympus. The two companies will also look for ways to cooperate in digital cameras.
"We are aggressively pursuing the growth of our medical business, with the aim of developing it into a key pillar of our overall business portfolio," Sony's Chief Executive Kazuo Hirai said in a statement on Friday.
Sony wants to nurture new businesses as it retreats from money-losing television manufacturing, while Olympus needs cash to fix its depleted finances after an accounting scandal forced it to restate several years of earnings.
Although it fits Sony's revival strategy, some analysts have questioned the cost of the acquisition in the wake of losses, arguing that a non-capital tie up would have made more sense.
Prompted by persistent weakness in its consumer electronics division, Standard & Poor's on Tuesday cut Sony's long-term debt rating by one notch to BBB, the second-lowest investment grade.
In selecting Sony as a partner, Olympus rejected offers from medical device maker Terumo Corp (4543.T) and camera maker Fujifilm Holdings Corp (4901.T). Those two companies, which compete more directly with Olympus, were proposing closer ties than Sony.
Rocked by the accounting scandal, Olympus booked a net loss of 49 billion yen in the year to March 31.
In June, its ratio of shareholders' equity to total assets fell to 2.2 percent from 4.6 percent in March. The figure is a barometer of a company's liquidity, with the 20 percent level regarded as indicative of financial stability.
The allotment of new shares to Sony is expected to raise the ratio to 10 percent.
Sony's Hirai and Olympus's President Hiroyuki Sasa will hold a press conference in Tokyo at 0030 GMT on Monday to explain the alliance. ($1 = 77.6950 Japanese yen).