Sumitomo Chemical Co. and Mitsui Chemicals Inc., Japan's second- and third-largest chemical firms, said Friday they will integrate their management by October 2003 in a bid to survive intensified global competition.

With combined consolidated sales of 1.8 trillion yen, the merged entity would surpass Mitsubishi Chemical Corp. to become Japan's largest chemical company and the fifth-biggest in the world.

The two companies said they will initially establish a holding company with a view to integrating all their businesses under a single entity.

The planned merger ratio has not been fixed.

Ahead of the overall business consolidation, Sumitomo Chemical and Mitsui Chemicals will integrate their polyolefins businesses by next October. The new company for polyolefins will be equally owned by Sumitomo Chemical and Mitsui Chemicals.

U.S. and European rivals have been pursuing megamergers, restructuring and carrying out active investments in Asia.

"Mitsui and Sumitomo came to realize that enhancing competitiveness through expanded business scale is a must for securing future growth and further enhancing corporate value," said Sumitomo Chemical President Hiromasa Yonekura.

Japanese chemical companies are also faced with the need to increase their competitiveness to cope with the planned reduction of import tariffs on petrochemical resin products in 2004.

Yonekura and Mitsui Chemicals President Hiroyuki Nakanishi denied that the two firms would consider reducing the number of employees, saying the merger is designed to expand their businesses.

The two chemical makers expect the merged company to earn 3 trillion yen in group sales and 250 billion yen in consolidated pretax profits in fiscal 2006. In fiscal 1999, combined sales at the two companies came to 1.8 trillion yen and consolidated pretax profits totaled 124.5 billion yen.

The two presidents will head a Business Consolidation Study Committee to examine details of their businesses and their management and personnel systems.

Sumitomo Chemical and Mitsui Chemicals said the merged entity will be able to establish a firmer hold on the petrochemical business in Asia by installing a new ethylene cracker in Singapore.

The companies expect the consolidation to enable them to produce substantial synergy in the fields of performance materials, fine chemicals and life science.

Sumitomo Chemical and Mitsui Chemicals have maintained cooperative relations for several years, setting up joint ventures that include Evolue Japan Co. in 1996, Japan Polystyrene Co. in 1997 and Nippon A& L Inc. in 1999.

This is the second merger move of the two zaibatsu business conglomerates, following the planned joining together next April 1 of Sumitomo Bank and Sakura Bank, a member of the Mitsui group.