Mitsubishi Heavy-Hitachi Merge Power Units Deepening Ties

Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) agreed to merge energy-equipment businesses with combined sales of 1.1 trillion yen ($13 billion), deepening ties between two of Japan’s largest industrial manufacturers.

Mitsubishi will own 65 percent of the venture, which will make gas turbines, boilers and fuel cells, according to a statement yesterday. Hitachi will hold the rest. The two Tokyo- based companies both rose on the city’s stock exchange today.

The combination unites Mitsubishi Heavy’s large-turbine technology with Hitachi’s expertise in smaller models as Japan steps up investment in thermal-power plants following a shutdown of atomic facilities triggered by last year’s Fukushima disaster. The new business will also compete with Siemens AG (SIE) and General Electric Co. overseas as growth in Asia spurs demand for electricity-generating equipment.

“It’s very positive,” said Masayuki Kubota, who oversees the equivalent of $1.8 billion in assets in Tokyo at Daiwa SB Investments Ltd. “The businesses have growth potential and merging with each other gives them a stronger competitive edge.”

Asia Opportunities

The new venture will aim to become the world’s biggest provider of thermal-power equipment, Hitachi President Hiroaki Nakanishi told reporters in Tokyo yesterday. It will target opportunities in Asia and work to bolster its service businesses, he said. The company is due to begin operations in 2014.

“The merged entity should be able to better compete with foreign firms,” Credit Suisse Group AG analysts Shinji Kuroda and Yunchao Zhao wrote in a note today. “Joint procurement could result in lower costs for parts and materials.”

Hitachi jumped 4.2 percent to 476 yen, the highest since Sept. 19, at close of trading in Tokyo. Mitsubishi Heavy rose 3 percent to 383 yen. The benchmark Nikkei 225 Stock Average climbed 0.5 percent.

The new tie-up builds up on relations dating back more than a decade. The two companies set up MHI-Hitachi Metals Machinery, Inc., which makes equipment for steel mills, in 2000. They formed a venture for selling trains overseas in 2010, and combined hydroelectric-power equipment units along with Mitsubishi Electric Corp. (6503) last year.

The companies may deepen ties in transportation and could eventually work together in nuclear power, Mitsubishi Heavy President Hideaki Omiya said at the press briefing.

“We’d like to cooperate on several fronts,” he said. “It may take longer on the nuclear power side given the delay in restarting reactors in Japan.”

Japan shuttered atomic plants after the Fukushima reactor was crippled by a tsunami, stoking concerns about radiation leaks and safety standards.

Talks Breakdown

Mitsubishi Heavy last year broke off talks about merging a number of units with Hitachi, which also makes servers, construction equipment and appliance, after media reports, a person familiar with the matter said at the time. Television footage had shown Hitachi’s Nakanishi saying “yes” when asked whether discussions were under way.

Separately, Mitsubishi Heavy also agreed to sell its forklift-making unit to affiliate Nippon Yusoki Co. (7105) in return for new shares. Mitsubishi Heavy will own 49 percent of the voting rights in Nippon Yusoki following the deal, as well as having additional class A stock. Nippon Yusoki surged 36 percent today, the most since November 1986.

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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