* Two companies to combine thermal power businesses
* Nuclear power excluded from tie-up - for now
* Hitachi-Mitsubishi venture to start in January 2014
* Shares of both firms rise in late trade
By Mari Saito
TOKYO, Nov 29 Mitsubishi Heavy Industries
and Hitachi Ltd are to combine their thermal
power businesses to compete against overseas rivals Siemens
and General Electric, which are winning deals
even in the Japanese firms' backyard.
The deal, in which Mitsubishi Heavy will take 65 percent in
a new company, also revives Hitachi's efforts to absorb some of
its local rival's infrastructure business to give it the scale
to expand beyond a stagnant home market.
The announcement comes more than a year after the two firms
called off talks to merge their infrastructure businesses. Talks
to combine the thermal power businesses began late this summer.
The new company, with Hitachi taking the remaining 35
percent, will bring together the two firms' gas turbine and
other fossil-fuel power generation equipment businesses, and
will be completed by January 2014.
For now, it excludes nuclear power - where Mitsubishi Heavy
has an alliance with France's Areva SA, the world's
biggest maker of nuclear plants. But Mitsubishi Heavy CEO
Hideaki Omiya told a joint news conference in Tokyo that his
firm will explore partnerships in other areas with Hitachi,
which has a nuclear power venture with GE.
"There are many Japanese companies today that are battling
each other domestically and then again with foreign
competitors," he said. "Instead of wasting our energy doing
that, we should be banding together to become even bigger to
take on our foreign rivals."
Hitachi CEO Hiroaki Nakanishi said the tie-up would help the
firms become a global leader in a tough business climate and
also beat back rising rivals from China and India. He added the
deal turned Mitsubishi Heavy from a feared competitor to a
The proposed venture would have annual sales of 1.5 trillion
yen ($18.3 billion), the Nikkei business newspaper said. In
July-September alone, Siemens had revenue of $27.9 billion and
GE posted sales topping $35.5 billion.
Mitsushige Akino, chief fund manager at Ichiyoshi
Investment, said it looked like a good move for both firms and
"since the new company will be better positioned to compete with
global rivals, it would appear to be a good move for Japan,
Mitsubishi Heavy's power system business accounts for around
a third of group sales and about 80 percent of group operating
profit. In the latest quarter, power systems accounted for
around 9 percent of sales at Hitachi.
The Japanese companies face tough competition from GE and
Siemens in the fossil-fuel power business, which has been
boosted in the aftermath of last year's nuclear disaster at
Tokyo Electric Power Co's Fukushima plant that
triggered a national outcry against nuclear power.
Japan's utilities have taken nuclear plants offline and now
depend heavily on fossil-fuel facilities, holding competitive
bids on gas turbine projects, which has opened up a previously
guarded market to foreign players.
GE and Toshiba Corp beat out Mitsubishi Heavy to
win a Chubu Electric Power Co contract to expand the
utility's gas turbine combined cycle plant in September.
Under such competitive pressure and faced with stuttering
global growth, Nakanishi has moved to streamline and shrink
Hitachi's loss-makers such as TVs and consumer electronics.
One of Japan's sprawling industrial conglomerates, Hitachi
at one time boasted close to 1,000 group companies making
everything from hub caps and lawnmowers to hard disk drives and
nuclear reactors. The group employs more than 323,000 workers.
Hitachi said earlier this month it would combine its Hitachi
Cable Ltd and Hitachi Metals Ltd in a bid to
trim costs. It also recently bought Britain's Horizon nuclear
project from German utilities RWE and E.ON
for $1.1 billion.
Hitachi's operating profit dropped more than 15 percent in
July-September as a sluggish global economy dented demand and
restructuring costs weighed on profits.
Profits at Mitsubishi Heavy, also Japan's leading aircraft
builder, fell 35 percent in the six months to end-September, but
the company has forecast full-year earnings will rise 8.3
percent to 130 billion yen ($1.59 billion).
Mitsubishi Heavy has also been in talks about taking a stake
in ailing Danish wind turbine maker Vestas, analysts
have said, and said on Thursday it will combine
its forklift operations with those of Nippon Yusoki.
Shares of Mitsubishi Heavy jumped 3.9 percent to a 7-month
closing high on Thursday, while Hitachi gained 2.9 percent to a
2-month closing high.