Hitachi and Mitsubishi deny merger reports

TOKYO: Japanese manufacturing giants Hitachi and Mitsubishi Heavy Industries on Thursday denied they are to start merger talks after reports that the two would move to create an industrial giant.

Kyodo news agency and other media said the two firms aimed to integrate infrastructure units including nuclear power plants amid concerns over the future of their atomic businesses amid the Fukushima crisis.

However, both companies later issued statements to say they had no plans to agree to any merger.

Japan's largest heavy machinery manufacturer Mitsubishi said it "has no plan to enter into any of the arrangement reported today."

Hitachi said the reports were "not based on fact".

That came despite Kyodo earlier reporting that the firm's president Hiroaki Nakanishi had told journalists "we will negotiate a merger from now".

The two companies have combined annual sales of more than 12 trillion yen ($155 billion) and investors sent their shares higher Thursday on hopes of a merger that would create one of the world's biggest infrastructure firms.

Hitachi closed up 1.72 percent at 471 yen and Mitsubishi Heavy Industries was up 3.43 percent at 361 yen.

"With opportunities for the social infrastructure business expected to expand especially in emerging countries like China and India, the two Japanese companies on their own do not have sufficient management resources to compete globally," said Yukihiko Shimada, an analyst at SMBC Nikko Securities.

The continuing crisis at the Fukushima nuclear plant has raised uncertainty over the future of their atomic power businesses, while the strength of the yen has made it more expensive for exporters to produce their goods domestically.

The yen had been hovering near its highest level since World War II in the past weeks, prompting Japanese authorities on Thursday to step into the market to weaken it.

Analysts say further consolidation is needed in a Japanese corporate space that has too many companies making the same products compared with the likes of South Korea and its industrial champions such as Samsung.

Earlier this year Japan's biggest steelmaker Nippon Steel and third-ranked rival Sumitomo Metal Industries said they were working towards a merger that would create the world's second-largest steel firm by 2012.

Hitachi, Japan's largest maker of electrical machinery, said last week its net profit plunged 96.6 percent to 2.9 billion yen ($37 million) in the April-June quarter, citing the impact of the March 11 earthquake and tsunami.

It has been facing pressure to curb some of its unprofitable lines and focus more on core businesses.

It said Wednesday that it was considering shifting all television production to foreign outsourcing firms by March as part of a broad strategy to increase profitability.

Mitsubishi Heavy's product lines range from ships, nuclear power plants, aerospace and engines. It is also Japan's largest military contractor.

On Thursday it said net profit for the fiscal first quarter fell 7.9 percent on-year to 9.6 billion yen, hurt by the yen's strength and a higher corporate tax burden.

Copyright AFP (Agence France-Presse), 2011