• Kyodo, Bloomberg


Nippon Steel Corp. and Sumitomo Metal Industries Ltd. announced Thursday they plan to merge on Oct. 1, 2012, using a ratio of 0.735 Nippon Steel share to one Sumitomo Metal share.

The new company, to be named Nippon Steel & Sumitomo Metal Corp., will be the world’s second-largest steelmaker and have an annual production capacity of 60 to 70 million tons, the companies said.

The merger will allow the new company to expand overseas and create synergies that allow it to save about ¥150 billion a year in costs by 2015.

“The companies will strive to create synergies by combining the resources that each has developed,” said Nippon Steel President Shoji Muneoka at a joint news conference in Tokyo.

“Integrating the two companies will be a huge task, but we aim to thoroughly integrate our operations,” said Sumitomo Metal President Hiroshi Tomono.

The two steelmakers began tieup talks in February, and the Fair Trade Commission is currently assessing the merger application submitted by the companies at the end of May.

The companies also plan to send merger applications to the fair trade watchdogs of about 10 countries, including the United States, China and South Korea — a step necessary for doing business overseas.

The two companies view the merger as crucial to strengthening their global competitiveness at a time when Chinese steelmakers, their main rivals in Asia, are expanding through tieups.

Once established, the new company will hold a 3 percent share of global crude steel production, placing it just behind industry leader Arcelor Mittal of Luxembourg, which holds 6 percent.

“The companies will continue to make further efforts to cut costs and boost price competitiveness that will allow the new entity to compete more effectively on a global scale,” the firms said.

Japan’s steelmakers are increasingly dependent on export growth as the domestic market shrinks. Nippon Steel and Sumitomo Metal, both based in Tokyo, hold a combined 44 percent share of the domestic market and 3 percent of the global market, based on crude steel output.

To advise them on the merger, Nippon Steel in February hired Mitsubishi UFJ Morgan Stanley Securities Co., Mizuho Securities Co., Bank of America Merrill Lynch and JPMorgan Chase & Co., while Sumitomo retained Nikko Cordial Securities Inc., Goldman Sachs Group Inc., Deutsche Bank AG and Daiwa Securities Capital Markets Co.

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