I keep blogging about Hitachi, because they are one of the most influential companies in Japanese business circles, along with Toyota and Panasonic. The way they have reinvented themselves since their record breaking loss in 2009 is watched closely by other Japanese blue chips.
According to the Nikkei Business magazine last month, discussions are well advanced to sell off Hitachi Chemical and Hitachi Construction Machinery. Both have appointed financial advisors – a non-Japanese investment bank in Hitachi Construction Machinery’s case. Hitachi Chemical is one of Hitachi’s three largest and longest surviving subsidiaries, known as the Three Branches (Hitachi Metals and Hitachi Cable being the other two).
Hitachi has already reduced 900 subsidiaries down to 500 and finalised the sale of car navigation system subsidiary Clarion to the French company Faurecia last month. The company will be delisted, ending 56 years of history as a listed company, leaving Hitachi with only 4 listed subsidiaries.
Clarion used to have a close relationship with Nissan, who in turn held a small share of Clarion,. With Ghosn’s restructuring of supply chains in the 2000s, Clarion began to struggle, and Hitachi stepped in, ending with over 60% share in the company. Faurecia says its interest in Clarion is to strengthen its autonomous driving capabilities. It also aims to improve Faurecia sales to Japanese and American car manufacturers and Clarion sales to European manufacturers. It may even invest in Clarion’s plant in Hungary, which is currently underutilized.
Social Innovation, not commoditization
Hitachi meanwhile is focusing its business on what it calls “Social Innovation” – the Internet of Things and social infrastructure. It is hiving off any businesses which are product focused and in danger of becoming commoditized. This would include Hitachi Chemicals, who have a stable profit margin of 5%, mainly providing chemicals for semiconductors and smartphones. Hitachi Construction Machinery is trying to move more into the services sector, and its profit margins are not as healthy as competitor Komatsu.
Neither company wants to be sold off, according to an investment banking insider, but are under pressure from Hitachi. So rather then be bought by a new parent company that they did not choose, they are making defensive moves. This won’t be the first time that one of Hitachi’s subsidiaries chose their own buyer. Hitachi Power Tools led the negotations themselves that ended in being sold to KKR, the American private equity fund in 2017.
Conversely, Hitachi is buying up businesses where it feels it needs strengthening, such as its acquisition last year of Swiss company ABB’s power grid business. Hitachi needs the cash for growth, which is another reason for selling off its listed subsidiaries.
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