TOKYO -- Oji Holdings will invest some 10 billion yen ($91.5 million) in Mitsubishi Paper Mills, lifting its 2.3% stake to 33% as Japan's top- and sixth-ranked papermakers deepen their alliance amid a shrinking market.
The deal announced Tuesday will make Mitsubishi Paper an equity-method affiliate of Oji. The additional investment is slated for completion between July 2018 and December 2019.
Oji will acquire about 7.6 billion yen in privately placed shares equal to a roughly 23% stake from Mitsubishi Paper. The rest will be acquired directly from five companies, including such Mitsubishi group members as trading house Mitsubishi Corp.
Oji and Mitsubishi Paper each expect synergies to boost operating profit by more than 2.5 billion yen in fiscal 2021. They are studying cooperation in such areas as procurement of raw materials like pulp, overseas shipping and original equipment manufacturing.
Japanese papermakers are faced with excess capacity as demand for such products as copier and printing paper declines. "We will naturally consider reorganizing our production centers," Mitsubishi Paper President Kunio Suzuki said.
Capital alliance negotiations began last summer. "We have cooperated with Oji for some time," said Suzuki, explaining that a capital alliance was needed to take the relationship to the next level.
"Mitsubishi Paper's talent and R&D know-how were attractive because we want to improve overseas operations and other businesses," Oji President Susumu Yajima said.
Oji is stopping at 33% "to protect Mitsubishi Paper's independence," explained Yajima, who is not considering any further investment.
The two companies already have a business alliance and will open a jointly run factory for household paper products in Aomori Prefecture next April. They have also jointly invested in a wood chip biomass power plant slated to come online in 2019.
Oji gained overwhelming earning power in the industry thanks to successful overseas acquisitions and other moves. Mitsubishi Paper, meanwhile, is struggling and aims to survive by strengthening cooperation with Oji.
The Japanese paper industry has seen no moves toward full-fledged unions since Hokuetsu Pulp bought Kishu Paper in 2009, but loose alliances have spread among existing players. Oji raised its stake in seventh-ranked Chuetsu Pulp & Paper in 2015, turning it into an equity-method affiliate.
Nippon Paper Industries, Japan's second-largest papermaker, teamed up with eighth-ranked Tokushu Tokai Paper to sell materials for cardboard and establish two joint ventures for production. The industry will likely continue to consolidate around Oji and Nippon Paper.
Domestic demand for paper and paperboard will likely fall an eighth straight year in 2018, according to the Japan Paper Association. "We will continuously think about industry reorganization going forward," Yajima said.