Mitsubishi Heavy Said to Scrap Merger Talks With Hitachi After Media Leaks

Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) said they’re not holding talks to merge some of their businesses, hours after the president of Hitachi said that a deal was being discussed.

Mitsubishi Heavy, Japan’s largest maker of heavy machinery, said it has no plan to agree to any merger. Hitachi, the nation’s second-largest manufacturer by revenue, said in a separate statement that no talks were in progress. The statements were released after Hitachi President Hiroaki Nakanishi’s televised comments on Tokyo Broadcasting System.
Shares of the companies, whose combined annual sales exceed $150 billion, rose in Tokyo trading after the Nikkei newspaper first reported they planned to discuss merging businesses including nuclear power plants and railway systems. Mitsubishi Heavy called off the talks after the media reports, a person familiar with the matter said.
“The shares are higher as investors still believe that they will reach agreement at some point,” said Mitsuo Shimizu, an analyst at Cosmo Securities Co. in Tokyo. “The reported merger would benefit both by complementing each other.”
Hitachi rose 1.7 percent to 471 yen as of the 3 p.m. close in Tokyo trading, extending its gain this year to 8.8 percent. Mitsubishi Heavy, which has risen 18 percent in 2011, traded 3.4 percent higher. Japan’s benchmark Nikkei 225 (NKY) Stock Average gained 0.2 percent.
Nakanishi’s Confirmation
Footage on TBS showed Nakanishi saying “yes” when asked by reporters whether Hitachi was holding merger talks with Mitsubishi Heavy. He said an announcement would be made later today, according to the broadcast.
Mitsubishi Heavy and Hitachi have worked together in the past. They merged their steelmaking equipment units in 2000 and combined their hydroelectric power equipment units last year.
The two companies were planning to discuss a merger of some operations, including nuclear power plants and railway systems, a person familiar with the matter said, confirming part of the earlier Nikkei report.
Such a combination would benefit both companies because they’d complement each other, David Rubenstein, a Tokyo-based analyst at MF Global FXA Securities Ltd., wrote in a report. The deal would help accelerate Hitachi’s reforms in its power-system operations, while improving Mitsubishi Heavy’s profit margins and execution, he wrote.
Largest Infrastructure Firm
An alliance would have led to the creation of one of the world’s largest infrastructure companies as Japanese manufacturers reel from this year’s deadly earthquake, tsunami and strong yen, according to the Nikkei.
Questions about the future of nuclear power after the Fukushima reactor meltdowns in March and Japan’s surging yen helped spur the talks, Nikkei said. Both had seen the atomic industry as a source of growth, the newspaper reported. Regulators would have to approve a merger, Nikkei said.
Hitachi’s products include communications and electronic equipment, industrial machinery and consumer electronics. In March it agreed to sell its hard-disk drive unit to Western Digital Corp. (WDC) for about $4.3 billion in cash and stock, the company’s largest disposal on record.
The sale was part of plans to trim some of Hitachi’s hundreds of businesses to focus on power plants, trains and other infrastructure projects. The company yesterday said it may stop making televisions.
Earnings, Market Value
Hitachi reported revenue of 9.3 trillion yen ($118 billion) last year and has a market value of 2.1 trillion yen, according to data compiled by Bloomberg. Mitsubishi Heavy posted sales of 2.9 trillion yen and is valued at 1.2 trillion yen.
“Hitachi has done some restructuring in the past, but putting two horribly run companies together in order to survive is music to my ears,” said Winston Barnes, director of sales and trading for Asian markets at WJB Capital Group Inc. in San Francisco. “The merger of some units is not expected until April 2013. They will undoubtedly deny the reports.”
Source: Bloomberg