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JFE, IHI to Merge Shipbuilding Units to Survive Competition

JFE Holdings Inc. (5411), Japan’s second- largest steelmaker, and IHI Corp. (7013) agreed to merge their shipbuilding units to create a builder to compete with South Korean and Chinese rivals.

JFE and IHI will each hold 45.93 percent of the merged company while Hitachi Zosen will take 8.15 percent, they said in a statement to the Tokyo Stock Exchange. The units will be combined on Oct. 1 and achieve cost savings of 10 billion yen ($130 million), they said, without providing merger terms.

JFE’s Universal Shipbuilding Corp. had sales of 205.5 billion yen in the year to March 31 last year, while Marine United Inc., IHI’s vessel builder, had revenue of 176.2 billion yen. Universal President Shinjiro Mishima will be president of the merged entity, he said.

Shipbuilders in Japan have struggled as slowing economies sap demand for new ships and sustained gains in the yen makes domestic-built ships more expensive than South Korean and Chinese vessels. Japan lost its title as world’s biggest shipbuilding country to South Korea in 2000 before falling into third place behind China in 2009.

“We’ve been left far behind,” Mishima said. “Unless we can achieve a certain size, we won’t be able to compete with rivals in terms of bargaining power and meet the challenges of developing a wider range of vessels.”

Main Threat

He said South Korean shipbuilders with sales of between 500 billion yen and 1 trillion yen were the main threat to Japanese shipbuilders, without identifying companies.

The companies don’t plan to cut jobs or close ship yards after the combination, Mishima said. Tokyo-based JFE and IHI started discussion on the merger in April 2008.

Universal Shipbuilding (UNSHZ) was created in 2002 when NKK Corp., now a part of JFE, and Hitachi Zosen (7004) merged their shipbuilding operations. Marine United is a wholly owned unit of IHI, a Tokyo-based heavy machinery maker.

JFE, which said earlier today it expects to report its first annual loss this fiscal year, fell 0.8 percent to close at 1,397 yen on the Tokyo stock exchange. IHI rose 2.5 percent to 203 yen.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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