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Business deals

Hitachi nears sale of core chemical unit to Showa Denko

KKR and Carlyle had shown interest in estimated $8bn deal

Hitachi is shifting focus from heavy industry to connected technologies, such as robotics. (Photo by Shunsuke Tabeta)

TOKYO -- Hitachi has moved closer to selling subsidiary Hitachi Chemical with the choice of Japanese materials group Showa Denko as its preferred negotiating partner for a deal poised to reach 900 billion yen ($8.26 billion), Nikkei has learned.

Hitachi has sought a buyer for the chemical unit, one of the industrial group's crown jewels, since May. The boards of both the parent and Hitachi Chemical on Monday backed Showa Denko for exclusive negotiations.

Mitsubishi Chemical Holdings and other bigger Japanese chemical makers had been initial contenders for a deal, as were U.S. buyout firms KKR and The Carlyle Group.

If completed, the deal would trigger the biggest shake-up in Japan's chemical industry in years, catapulting Showa Denko ahead of rivals Mitsui Chemicals and Shin-Etsu Chemical in terms of revenue.

For Hitachi, the sale continues a shift from heavy industry to digital technology as the group's core. While Hitachi Chemical commands large market shares in semiconductor packaging materials and anode materials for lithium-ion batteries, it has little relevance to connected devices -- the "internet of things" -- which have emerged as the group's new focus.

Showa Denko apparently pulled ahead of rival suitors during second-round bidding. If a deal is reached, the company would purchase Hitachi's 51% stake in Hitachi Chemical, then acquire the rest of the shares through a tender offer.

Assuming it pays a premium to Monday's closing share price, Showa Denko could spend about 900 billion yen on the takeover.

Showa Denko holds a leading global share in hard disks and graphite electrodes for steelmaking, and it supplies chemicals for semiconductors and other industries. The addition of Hitachi Chemical would drive growth for the new parent.

Hitachi Chemical was one of Hitachi's three traditional core units, along with Hitachi Metals and Hitachi Cable.

Hitachi Metals, which has absorbed Hitachi Cable, is also under consideration for a sell-off depending on its synergy with the group's digital business. At the end of October, Hitachi said it would merge Hitachi Automotive Systems with three auto suppliers affiliated with Honda Motor.

Hitachi has been shedding assets following an earnings downturn after the global financial crisis. Just four of the sprawling group's affiliates are now listed on the Japanese stock market, down from 22 at the end of fiscal 2009. Hitachi aims to shrink its current count of roughly 800 group companies to about 500 units within a few years.

Selling Hitachi Chemical to Showa Denko would likely spur further consolidation in Japan's chemical industry. Mitsui Chemicals and Sumitomo Chemical decided to merge in 2000, only to abandon those plans in 2003. Mitsubishi Chemical took over Mitsubishi Rayon in 2010, but such large-scale mergers have lagged in Japan. Meanwhile, the global chemical industry has seen megadeals such as the 2017 combination of Dow Chemical and DuPont.

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