Showa Denko unveils $ 8.8 billion deal for Hitachi Chemical

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Showa Denko KK, Japan’s third largest supplier of diversified chemicals, has agreed to pay more than double its own market value to buy its biggest rival Hitachi Chemical Co., to expand its lithium-ion battery and advanced materials business and keep pace with its Chinese rivals.

Tokyo-based Showa Denko has offered up to 964 billion yen ($ 8.8 billion) for all shares of the chemicals unit of Hitachi Ltd., one of Japan’s largest industrial conglomerates, he said in a statement Wednesday. The takeover bid will begin around February at 4,630 yen per share, the company said. This is 34% more than the closing price on November 25, the day before the talks between the two companies.

The purchase would be Showa Denko’s largest ever and would boost the company’s revenue from lithium-ion automotive batteries and related materials – segments that are growing rapidly as automakers rush to make more vehicles electric. Hitachi has abandoned its secondary activities to refocus on manufacturing equipment and data services that benefit from Internet of Things technologies.

Synergies with Hitachi Chemical, which include lithium-ion batteries and semiconductor carriers, would amount to around 200 billion yen after three years, President Kohei Morikawa told reporters in Tokyo on Wednesday.

Earlier today, Hitachi said he had agreed to another sale as he continued to focus. The conglomerate announced that it would sell its diagnostic imaging unit in Tokyo Fujifilm Holdings Corp. under a 179 billion yen deal.

Chinese scale

Hitachi Chemical’s board has said it will recommend that shareholders tender their shares into the Showa Denko deal, the company said in a statement on Wednesday.

The addition of the Hitachi subsidiary will also give Showa Denko more scope to compete with its Chinese rivals which have grown globally, the company said.

“Chinese materials manufacturers have developed a business that takes advantage of economies of scale and materials manufacturers in the Middle East have also increased their cost competitiveness,” Showa Denko said in the statement. The company needed a bigger and bigger market share to remain a major global manufacturer, he said.

To pay for the purchase, Showa Denko is requesting a loan of 295 billion yen from Mizuho Bank and will sell preferred shares to the bank and the Development Bank of Japan, she said in the announcement. The company does not intend to sell common stock, he said.

Japan credit Rating agency said the deal would hurt Showa Denko’s finances.

“Although the acquisition scheme is designed to reduce the direct financial burden on the business, the deterioration of the financial structure will be inevitable, ”the agency, known as JCR, said in a statement on Wednesday.

Spree case

Showa Denko’s offer is part of several major deals announced by Japanese companies at the end of the year. Wednesday, Isuzu Motors Ltd. has agreed to buy the Japanese manufacturer UD Trucks from Volvo Group in a 250 billion yen deal and forge a strategic alliance.

In addition, Hitachi Ltd. announced that she would book a 378 billion yen when he agreed to settle a dispute with Mitsubishi Heavy Industries Ltd. on losses from coal-fired power plants in South Africa. Hitachi lowered its estimate of its annual net profit by 53 percent to 170 billion yen, while keeping its forecast for revenue and operating profit unchanged, it said in a statement on Wednesday.

Hitachi focused its acquisitions on power grids and data management. He is in the process of concluding an agreement for The power grid division of ABB Ltd. for around $ 6.4 billion after making a deal a year ago for its biggest ever purchase. The manufacturer also said it was considering options for Hitachi High-Technologies Corp., including making the electronic, medical and chipmaking equipment company a wholly owned subsidiary.

– With the help of Masumi Suga and Reed Stevenson

(Updates with Showa Denko Chairman’s comments in the fourth paragraph)