* Merger would create $20 bln revenue company
* Union possible sometime next business year-sources
* Internal opposition to merger exists-sources
TOKYO, April 22 Kawasaki Heavy Industries Ltd
and Mitsui Engineering & Shipbuilding Co Ltd
will begin talks on a possible merger, according to three
sources familiar with the discussion, although as yet it is
unclear whether the two Japanese heavy machinery makers can
overcome internal reticence about a union.
The companies have sought out financial advisors to help
with a merger, without formally appointing any, the sources said
on condition they were not identified because they are not
authorised to talk to the media. At the earliest a merger could
happen during the next business year from April 1, 2014, they
A merger between Kawasaki Heavy, best known outside Japan
for its motorbikes, and Mitsui Engineering, a leading maker of
ship engines, would create a company with some $20 billion of
revenue, putting it in second place behind heavy machinery
industry leader Mitsubishi Heavy Industries Ltd.
Mitsui Engineering's shares jumped by as much as 20.7
percent to a near two-year high on Monday, while Kawasaki's
shares gained 1.8 percent after the talks were first reported by
Japan's leading business daily, the Nikkei. The Nikkei share
average climbed 2.1 percent to a near five-year high.
Greater scale would help a merged company better compete for
machinery and infrastructure contracts in emerging economies. A
deal would give Kawasaki, which is looking for opportunities
beyond its nuclear reactor business, access to Mitsui
Engineering's ocean gas and oil drilling platform technology,
while a combined firm would be better able to compete with
expanded shipbuilding operations, according to analysts.
Mergers among Japan's sprawling heavy equipment makers have
proved difficult however in the face of rivalries between
conglomerates that stretch back to the country's emergence as an
industrial nation more than a century ago.
"There is still disagreement within Mitsui's management. As
of now, those pushing for the merger have yet to persuade those
opposing it," one of the sources said.
Mitsubishi Heavy, which makes products ranging from fighter
jets to nuclear power plants, in November agreed to combine its
thermal power businesses with that of Hitachi Ltd to
better compete against overseas rivals such as Siemens
and General Electric.
The two, however, a year earlier balked at agreeing on a
wider merger of their infrastructure businesses.