TOKYO-- Mitsubishi Heavy Industries Ltd. and Siemens AG said
Wednesday that they had agreed to combine their business arms that
make machinery for steel mills and other metals plants, with the
Japanese partner taking a controlling stake.
The joint venture is the latest example of global consolidation
involving old-line heavy industries in mature economies. Siemens is
also currently locked in a struggle with General Electric Co. for
the power-generating business of Alstom of France. The Mitsubishi
Heavy metals equipment unit is already a joint venture with two
other Japanese companies, Hitachi Ltd. and IHI Corp.
Increased output from mills in China, South Korea and other
Asian countries has created a steel glut and a sharp decline in
demand for steelmaking equipment, prompting companies like Siemens
and Mitsubishi Heavy to seek merger partners.
Executives of Mitsubishi Heavy and Siemens said they were
hopeful that business would recover over the next few years as
demand for steel rises, led by the auto industry. They set a
midterm goal of Yen400 billion ($3.93 billion) in sales for the
combined business. Currently Mitsubishi Heavy's metals equipment
business has sales of about Yen62 billion a year, on a three-year
average, while the Siemens unit has sales of about EUR2 billion
annually.
Though the Siemens arm is bigger, with about 8,700 employees to
the Mitsubishi Heavy unit's 1,000, the Japanese company is taking
control, with a 51% stake. The companies declined to specify
financial details of the agreement, saying these were still being
negotiated.
Miguel Angel Lopez, chief financial officer of the industrial
division of Siemens, said the Japanese partner was taking the lead
because of its expertise in plant engineering.
"Siemens and MHI ideally complement each other in their product
portfolios, production know-how and industrial strength," he said
in a news conference in Tokyo.
Reports about talks between the companies have prompted concerns
about layoffs and a loss of industrial know-how in Austria, where
the Siemens unit is based in Linz, an old industrial city along the
Danube River. The companies said the new business would employ
about 9,000 workers, slightly less than the 9,700 at the existing
operations, and executives cited cost-saving synergies as one
motivation for the deal.
The new company will be based in Britain, which executives
described as a neutral site suited to the new company's global
ambitions.
The move follows a decision by Hitachi to shift the headquarters
of its global rail operations to London from Tokyo, after the
company received a big order to make trains for the British
railways.
"We could have chosen any place as a headquarters location,"
said Shunichi Miyanaga, chief executive of Mitsubishi Heavy. "But
we want to be a universal service provider. With that in mind, we
chose the U.K."
Write to Eric Pfanner at eric.pfanner@wsj.com
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