Contractors to merge April 1

Mitsui, Sumitomo hope to win 500 billion yen in orders

Mitsui Construction Co. and Sumitomo Construction Co. said Friday they will merge their operations April 1 after finalizing the terms of an integration plan they unveiled in January.

Mitsui Construction will survive the merger, and the new company will be called Sumitomo Mitsui Construction Co. The merger ratio will be determined by mid-November, company officials said.

Mitsui Construction President Noboru Sei will become president of the merged company and Sumitomo Construction counterpart Hitoshi Tsujimoto will become chairman.

On Friday, the companies signed a basic agreement to be approved by their respective boards in mid-November. The merger plan is expected to get the green light from stockholders at an ad hoc meeting in mid-February, they said.

The presidents of both companies said that because their fields of operation, customer segments and sales bases are largely complementary, the merger will allow them to boost efficiency.

The firms are currently reducing their workforces. The new entity will continue this effort in a bid to reduce its workforce to around 3,850 employees, down from the combined 4,725 employed at the two firms as of the end of March, they said.

Sumitomo Mitsui Construction will hope to win contracts worth 500 billion yen in 2005, compared to the combined orders worth 600.6 billion yen held by the two merging firms in 2001.

The new firm is targeting an operating profit of 32.5 billion yen and a pretax profit of 20 billion yen from its core construction operations in 2005, the two general contractors said.

The new entity plans to cut group interest-bearing debt by 186.6 billion yen by March 2006.

The move will create a large construction firm with about 712.8 billion yen in revenues — based on their combined figures in 2001 — bringing them close in line behind Japan’s five largest construction companies, including Shimizu Corp. and Obayashi Corp.

Sumitomo Construction has received some 60 billion yen in financial assistance from Sumitomo Mitsui Banking Corp.

This assistance was provided in the form of loan forgiveness and a capital injection through third-party allocated shares.

To take responsibility for this scenario, Tsujimoto will not have any representative rights when he assumes the chairmanship of the new company.

The two firms, which both rank around 15th in Japan’s construction market, have been struggling under heavy debts linked with real-estate investments that turned south when the bubble economy burst in the early 1990s.

The merged company is expected to undergo large-scale streamlining, including trimming non-core businesses to improve efficiency.

The two firms are also expected to negotiate with Fujita Corp., a construction company created Tuesday, about joining the merged firm.

Fujita was set up after an ailing second-tier construction company, also called Fujita Corp., was divided into relatively healthy construction operations and money-losing real-estate services.