July 25 (Bloomberg) -- Hitachi Ltd.’s chief executive officer said he’s open to deeper ties, which could include merger talks, with Mitsubishi Heavy Industries Ltd., after the equipment makers failed in their bid for Alstom SA’s power business.
“We’ve built a relationship with them to talk frankly” about extended partnerships, Hiroaki Nakanishi said in an interview at a business forum in Tokyo yesterday. “The possibility of merger discussions shouldn’t be denied.”
While the companies are in talks about possible ties outside their thermal-power equipment businesses, they’ve yet to come up with candidates among their other operations, he said.
The comments from Nakanishi underscore the closer relationship developing between two of Japan’s largest industrial manufacturers. In 2012, the two agreed to merge their energy-equipment businesses, described by Nakanishi at the time as a step toward becoming the world’s biggest provider of thermal-power equipment.
The Japanese equipment makers suffered a setback in June when their joint offer with Siemens AG for the energy business held by France’s Alstom was thwarted by a competing bid from General Electric Co. The Siemens proposal would have seen Mitsubishi Heavy and Hitachi pay 3.1 billion euros ($4.2 billion) for stakes in the French company’s steam-turbine, power-grid and hydro businesses.
It would be “difficult” to fully combine operations with those of Hitachi, said a Mitsubishi Heavy spokesman, who asked not to be identified, in line with company policy.
“Our next challenge is Africa, where energy demand is strongest,” Nakanishi said. “Europe is quite close to Africa. For example, Alstom has many operational bases there. So we think GE’s Alstom deal will be a threat to us regarding some specific regions and fields. We have taken and think will need to continue to take countermeasures.”
Growth through acquisitions has been discussed openly by Hitachi and Mitsubishi Heavy executives, who’ve made no secret of the desire to expand their partnership.
In 2011, Mitsubishi Heavy broke off talks about merging a number of units with Hitachi. The following year, Mitsubishi’s president at the time said the companies could deepen ties in transportation and may eventually work together in nuclear power.
Hitachi President Toshiaki Higashihara said in January that his company would consider mergers and acquisitions of various kinds. Mitsubishi Heavy CEO Shunichi Miyanaga said after the failure of the Alstom bid that the energy venture with Hitachi, known as Mitsubishi Hitachi Power Systems Ltd., would form a hub for growth.
Mitsubishi Heavy closed up 2.4 percent at 680 yen in Tokyo trading, the highest since Jan. 29. Hitachi gained 1.2 percent to 789.6 yen.
“Steps to grow our energy and environment operations weren’t reliant” on the Alstom deal, Miyanaga told shareholders in Tokyo at the company’s annual meeting on June 26. “We intend to further accelerate Mitsubishi Hitachi Power Systems’ potential,”
Building gas turbines and pumps for thermal, nuclear and geothermal power plants already delivers more than one-third of revenues at Mitsubishi Heavy. It’s the Tokyo-based company’s biggest contributor to operating profit.
Hitachi, with a market value of $37 billion, is also a name in consumer electronics. Mitsubishi Heavy, the one-time maker of the Zero fighter planes deployed in World War II, has a capitalization of $22 billion.
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