Mitsubishi Heavy and Hitachi Merge Power Divisions to Compete Globally

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--In a move to increase their market fire power, Hitachi Limited (OTC:HTHIY) (Tokyo, Japan) and Mitsubishi Heavy Industries (OTC:MHVYF) (Tokyo) are merging their thermal power divisions. A joint venture company will be set up with Mitsubishi holding 65% and Hitachi 35%. The merge will be completed by January 2014.

The merge will give the combination an increased ability to compete with Siemens AG (NYSE:SI) (Munich, Germany) and GE (NYSE:GE) (Fairfield, Connecticut) in world markets with combined annual sales of turbines, environmental equipment and fuel cells estimated at between $13 billion and $18 billion. In the third quarter of this year, Siemens had revenues of $27.9 billion and GE's sales were more than $30.5 billion.

Although the relatively stagnant Japanese market was one of the motivators behind the deal, there is also the prospect of good gas turbine sales in Japan as the country's post-Fukushima energy policy takes shape.

"The combination of Hitachi and Mitsubishi Heavy's thermal power business is the best mix in Japan in terms of technology and human resources to offer total solutions to clients," said Hitachi president Hiroaki Nakanishi.

Executives from both companies said that the rise of heavy engineering firms in China, India and other emerging companies is set to intensify global competition in the energy sector. They also dismissed speculation that the two companies would eventually merge all their operations. But Mitsubishi Heavy CEO Hideaki Omiya told a press conference in Tokyo that Mitsubishi will explore partnerships in other areas with Hitachi. The latter already has a nuclear power joint venture with GE.

Mitsubishi Heavy's power system business accounts for about 33% of group sales and about 80% of group operating profit. In the third quarter of 2012, power systems accounted for about 9% of Hitachi's sales.

In November 2012, Hitachi announced that it would purchase the United Kingdom's Horizon nuclear power project for $1.12 billion, and said that it combine Hitachi Cable and Hitachi Metals to trim costs. Both Mitsubishi and Hitachi have seen profits drop in 2012 up to the end of September.

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