Hitachi Gaining Control

Hitachi Ltd. (HIT), a Tokyo-based global conglomerate, plans to buy out its five listed subsidiaries to gain 100% ownership for ¥300 billion ($3.16 billion). The buyout will commence in August this year. Speculation led to a 6.0 % jump in the shares of Hitachi in early morning Tokyo trade on Monday.

These subsidiaries include Hitachi Maxell Ltd., a manufacturer of batteries and storage media such as DVDs; Hitachi Plant Technologies, a maker of factory equipment; and three IT subsidiaries — Hitachi Information Systems, Hitachi Software Engineering and Hitachi Systems & Services.

Although Hitachi did not provide any comments on the merger, the Nikkei reported that Hitachi’s decision would be announced by the end of the week. The Nikkei also said that although Hitachi already owns a majority in each of the five subsidiaries, it would have to pay a premium to the minorities in the tender offer.

In the past, the company has undergone a number of structural changes and consolidated a number of its subsidiaries, which helped expand and strengthen its business. To further improve profitability and bolster competitiveness, the company will review equity relationships and consolidate the number of its subsidiaries to fewer than 800 Group companies targeted by the end of March 2010, compared to 943 in March 2009. This move will help Hitachi focus on its core business.

We expect the streamlining to increase operating efficiencies, leveraging group-wide synergies, which will reduce procurement costs, business expenses, IT operational costs, and other costs by standardizing and integrating business operations. This move should establish a solid business structure within the Hitachi Group enhancing the group’s competitiveness worldwide.

Hitachi is set to release its first-quarter results on July 28, 2009.

Read the full analyst report on HIT