Hitachi to sell half its stake in Hitachi Construction Machinery to Japanese consortium for $1.3bn
Staff Report, January 17, 2022
Joint venture between trading house ITOCHU and investment fund JIP to become largest shareholder in Hitachi Construction Machinery after share transfer is completed by June 2022
Hitachi Construction Equipment (HCM) is set to undergo an ownership change after parent company Hitachi Ltd. said it is selling half its stake in the Japanese equipment major for $1.3 billion to a 50/50 joint venture between Japan’s trading major ITOCHU Corp and investment fund Japan Industrial Partners Inc (JIP).
Hitachi Ltd currently holds 51.5% of HCM, one of the largest suppliers of mining and heavy construction machinery in the world. The company will now sell half of that to the joint venture known as JIP Consortium SPC, which will take control of 26% of HCM when the transaction is completed in June this year.
While the JIP Consortium will hold around a 26% stake in HCM, Hitachi’s holdings will fall to 25.4%, with the remainder being held by general shareholders. HCM will now become an affiliate company of ITOCHU and an equity method associate of Hitachi but not consolidated by Hitachi. Under the agreement, worth ¥150bn or over $1.3bn, HCM equipment will continue to use the Hitachi brand.
Commenting on the deal, Hitachi Ltd. said: “With the support of Japan Industrial Partners and ITOCHU, Hitachi Construction Machinery will contribute to enhancing the value of the Hitachi brand and expanding the Lumada business by accelerating its global growth strategy. Hitachi will continue to aim for further expansion of the Lumada business by collaborating with Hitachi Construction Machinery in R&D such as IoT, and parts and services business that utilises digital technologies.”
Hitachi plans to discuss with HCM and enter into transition services agreements with respect to various rights and obligations among HCM and Hitachi and its group companies, including the continued use of the Hitachi brand, by the closing date of the share transfer.
As a parent company, Hitachi says it has worked closely with HCM to support the company’s growth. Currently, HCM’s basic policy on growth strategy is to contribute to solving issues that its customers and the society face by developing a value chain business (parts and services, rentals, used equipment, etc) in addition to its new machinery business, with a focus on major construction machinery, such as excavators, wheeled loaders and dump trucks.
“Under the ‘Realising Tomorrow’s Opportunities 2022’, the management plan ending in fiscal year 2022, HCM is working to achieve sustainable growth and the enhancement of corporate value through the three pillars of its management strategy: (i) strengthening its value chain businesses, (ii) providing enhanced solutions at every point of contact with customers, and (iii) building a highly flexible corporate structure that is resilient to change,” said Hitachi.
“Hitachi and HCM have considered measures to achieve further growth and enhancement of corporate value of HCM. As part of the consideration, Hitachi engaged in discussions with JIP and ITOCHU as new partners who can support the growth of HCM from a medium– to long–term perspective. JIP has an extensive track record of investments and partnerships in Japan, and ITOCHU has the know–how related to construction machinery and related equipment businesses within the group. Hitachi believes that HCM‘s aiming for further growth through collaboration with the two companies with such strengths will lead to an enhanced corporate value of HCM, and has come to the conclusion that Hitachi will transfer a part of shares of HCM common stocks owned by Hitachi to JIP Consortium SPC.”
Hitachi added that it will use the proceeds obtained from the Share Transfer as a source of funds for strengthening its financial base, returning to its shareholders and investing in growth opportunities, and will “strive to enhance its corporate value via sustainable growth through social innovation business”.
ITOCHU stated: “The construction machinery industry is seeing an accelerated flow from ownership (purchasing) to use (renting). This will require a business transformation to cater to diversified customer needs, including preventive maintenance and enhancement of the uptime ratio by utilising construction machinery uptime data; online purchases of new equipment and parts and sales of used equipment; and support for rentals. ITOCHU will endeavour to provide customers with new value by tapping into its existing business foundation and working with Hitachi Construction Machinery to deepen the solution business on which it focuses, based on a market–oriented perspective.”