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Giant shipbuilding merger in works

Kyodo

Kawasaki Heavy Industries Ltd. and Mitsui Engineering & Shipbuilding Co. have started preliminary talks on a possible business integration, sources said Monday.

If the integration goes through, it will create a giant in the shipbuilding-heavy machinery industry whose aggregate consolidated sales will eclipse ¥1.8 trillion, second only to Mitsubishi Heavy Industries Ltd., which has sales of ¥3 trillion.

The two companies are keen to expand their business in the global market by combining their strengths in a range of areas, such as plant construction, as the shipbuilding industry is experiencing hard times, the sources said.

The move, however, would not drastically increase the market share of Japanese shipbuilders because they are lagging far behind their Asian rivals in terms of orders.

Kawasaki Heavy has been ahead of its rivals in building a global business network through such steps as setting up shipyards in China under a joint venture arrangement.

Mitsui Engineering is known for its expertise in building offshore oil and gas facilities, but has a drawback in that it relies on shipbuilding operations for more of its revenues than its rivals. The business structure makes it vulnerable to a fall in shipbuilding orders, so the company has made it a priority to diversify.

The two companies are expected to take into consideration multiple integration formats, including an outright merger. But the sources said there remains some wariness within the firms about any form of integration that could cause the talks to undergo several twists and turns.

Kawasaki Heavy is forecast to have posted ¥1.3 trillion in group sales in the business year to March 31 against ¥577 billion expected to have been earned by Mitsui Engineering.