Kawasaki Heavy Eyes Merger to Thin Shipbuilding Industry Ranks

Kawasaki Heavy Industries Ltd. (7012), Japan’s third-biggest shipbuilder, would consider merging to thin out the number of Japanese companies operating in a crowded field.

“In the future, a merger is one option to consider given that there are too many companies in this industry” Senior Executive Vice President Mitsutoshi Takao told reporters in Tokyo today after the company reported that net income may rise 10 percent this fiscal year, lagging analysts’ estimates.

The comments follow a report April 22 in the Nikkei newspaper that said Kawasaki Heavy and Mitsui Engineering & Shipbuilding Co. (7003) are in talks to combine. Kawasaki Heavy hasn’t entered into talks with Mitsui Engineering and a merger wasn’t discussed at the company’s board meeting today, Takao said.

Pressure among Japanese companies has arisen in the face of competition from lower-cost producers in China and South Korea. Though it has weakened this year, the yen’s recent strength has also acted as a catalyst.

Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) said last year that they plan to combine their energy-equipment businesses by January, deepening ties between two of Japan’s biggest industrial manufacturers. Nippon Steel & Sumitomo Metal Corp., the world’s second-biggest steelmaker, was formed by a domestic merger in October to become more competitive with steelmakers in China and South Korea.

Kawasaki Heavy, based in the western port city of Kobe, was founded as a shipbuilder in 1878. The company has grown into one of Japan’s top three makers of heavy machinery and produces everything from submarines for Japan’s self defence forces and high-speed trains to Ninja racing bikes. 

Japanese shipbuilders have lost market share to Chinese and South Korean rivals, which expanded facilities and contracts by taking advantage of lower costs.

Japan held a market share of 18.3 percent last year as measured by ship completion, compared with China’s 40.9 percent and South Korea’s 32.9 percent, according to the Shipbuilders’ Association of Japan, which cites researcher IHS.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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