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Hitachi Plant, Hitachi Kiden, Hitachi Industries and Related Hitachi Divisions to Integrate to Strengthen Social and Industrial Infrastructure Systems Business

Posted on: Monday, 24 October 2005, 03:01 CDT

Hitachi, Ltd. (NYSE:HIT) (TSE:6501), Hitachi Plant Engineering & Construction Co., Ltd. (TSE:1970), Hitachi Kiden Kogyo, Ltd. (TSE:6354) and Hitachi Industries Co., Ltd. today signed a Memorandum of Understanding agreeing to integrate Hitachi Plant, Hitachi Kiden, Hitachi Industries and part of Hitachi's Industrial Systems Group on April 1, 2006. This integration is intended to strengthen the Hitachi Group's social and industrial infrastructure systems business, which includes industrial machinery, high voltage air-conditioning (HVAC) systems, water treatment systems, industrial plants, cranes and environmental facilities and systems.

Specifically, on April 1, 2006, parts of the Public & Municipal Systems Division (machinery-related systems business) and Industrial Systems Division, in Hitachi's Industrial Systems Group will be separated and transferred to Hitachi Plant. At the same time, Hitachi Kiden and Hitachi Industries will be merged into Hitachi Plant, which will continue to operate under a new name.

Plans call for Hitachi Plant to allocate 11,591,000 shares of its common stock to Hitachi upon the aforementioned corporate split. The merger ratio is planned to be 1, 0.93 and 13.40 for Hitachi Plant, Hitachi Kiden and Hitachi Industries, respectively.

Under its current medium-term management plan "i.e.HITACHI Plan II," the Hitachi Group is engaged in efforts to set itself apart and bolster its ability to compete by leveraging the aggregate strengths of the group as a collection of strong businesses. The social and industrial infrastructure systems business is one of the Hitachi Group's core businesses. Up until now, several different entities have been responsible for each part of this business. Hitachi has handled large pump systems for water and sewage plant, as well as home appliance recycling systems, chemical and pharmaceutical plants and chemical equipment, such as evaporators. Hitachi Plant has provided high voltage air-conditioning (HVAC) systems, clean rooms, water treatment systems, soil remediation systems, chemical and pharmaceutical plants, food plants, and design, manufacturing and construction of power generation facilities, among other activities. Hitachi Kiden's businesses include water treatment equipment, conveyance systems for LCDs, cranes and electrical systems, including control panel. For its part, Hitachi Industries provides large pumps, LCD manufacturing equipment screen printers for Surface Mount Technology, compressors, gears, environmental testing facilities and other products and systems. However, to promote the social and industrial infrastructure systems business as a core Hitachi Group business, it is essential to draw on the group's collective strengths. This entails drawing on the management resources of the group and combining its comprehensive capabilities, including monozukuri (manufacturing) capabilities, such as product development, and design/manufacturing production technology; engineering capabilities, such as combining components in complete systems; work-site capabilities, such as construction techniques and project management abilities. This is why the Hitachi Group has decided to implement this restructuring.

The new company will bring together the respective technologies and know-how of similar and related businesses that have been scattered among the four companies. This process will involve the restructuring of operations into five business divisions in the new company: the Social and Industrial Business Division, responsible for water treatment equipment and systems, large pumps, compressors, gears and other products and systems; the Mechatronics Business Division, which will handle products and systems such as conveyance systems for LCDs, LCD manufacturing equipment and screen printers for Surface Mount Technology; the Air-Conditioning Systems Business Division, which will be responsible for air-conditioning systems for buildings and industrial HVAC systems such as clean rooms; the Industrial Plant Business Division, whose responsibilities will include chemical and pharmaceutical plants, food plants, chemical equipment and cranes; and the Energy Business Division, which will be responsible for the construction of nuclear and thermal power generation facilities. Engineering, design and production, construction and service departments will be established in each of these business divisions to create a framework that will allow each of them to give full play to their collective strengths. Furthermore, company-wide, cross-organizational sales, R&D, monozukuri and other organizations will be established to increase synergies from integration.

Plans call for a Corporate Split Agreement and Merger Agreement to be concluded by mid-December and for the new company to be established on April 1, 2006 (registered on April 3) following approval at extraordinary shareholders' meetings of Hitachi Plant, Hitachi Kiden and Hitachi Industries scheduled for early February 2006. The new company will maintain stock listings on the Tokyo Stock Exchange and Osaka Securities Exchange.

About the New Company

1. The Merits of Business Integration

(1) Strengthening solution provision

This restructuring is designed to create value in the social and industrial infrastructure systems business by integrating the group's monozukuri (manufacturing) engineering and work-site capabilities. In addition, the business will secure an even more competitive position in key technologies and components. Another goal of the restructuring is to strengthen development and solutions provision by bringing together machinery, control system and software design engineers, production technicians, and construction and plant engineers. The new company will create an integrated framework extending from sales, engineering, design, production and construction to services that will enable it to stay on top of market change and customer needs, rapidly develop new products, and provide best-fit solutions. This integrated framework will also allow greater investment through greater scale, the continuous development of key technologies and components, greater efficiency from the integration of related businesses and responses to meet the globalization of markets.

(2) Integrating on Management Resources, Strengthening Sales Workforce Frameworks and Merging Bases

The integration of similar and related businesses managed by Hitachi Plant, Hitachi Kiden, Hitachi Industries and the relevant divisions of Hitachi into business divisions by fields, will streamline businesses and cut fixed costs by improving business processes. After its formation, the new company will also build an optimal and powerful sales system by cooperating with Hitachi sales divisions, as well as by integrating the domestic sales and service bases and overseas bases of each company. The new company will also examine the best framework for production bases.

(3) Integrating R&D

To take the lead in technological innovation across a broad range of fields, actions will be taken to strengthen R&D capabilities. This will involve integrating the R&D functions of Hitachi Plant, Hitachi Kiden and Hitachi Industries. At the same time, the new company will collaborate with the corporate laboratories of Hitachi's Research & Development Group and the Power & Industrial Systems R&D Laboratory. In fields which have a competitive edge, in particular, the new company will engage in R&D that draws on the collective strengths of the Hitachi Group to develop unrivaled technologies and products.

(4) Strengthening Procurement Capabilities

Costs will be cut by strengthening purchasing and procurement capabilities through economies of scale, bringing production of purchased products in-house and other means.

2. Business Targets of the New Company

Revenues and operating income of the new company for the fiscal year ending March 31, 2007 are projected to be approximately 350.0 billion yen, 11.4 billion yen.(Operating income ratio : 3.3%) The Hitachi Group's goal is to raise revenues and operating income to 400.0 billion yen, 20.0 billion yen. (Operating income ratio: 5.0%) in fiscal 2010, ending March 31, 2011, by using this business integration to bolster the business foundation.

3. Overview of the Corporate Split and Merger (1) Schedule of the Corporate Split and Merger October 24, 2005 Conclusion of Memorandum for Corporate Split and Merger Mid-December 2005 Conclusion of Corporate Split Agreement (Hitachi and Hitachi Plant) Conclusion of Merger Agreement (Hitachi Plant, Hitachi Kiden and Hitachi Industries) Early February 2006 Approval of Corporate Split and Merger Agreements by General Meeting of Shareholders (Hitachi Plant) Approval of Merger Agreement by General Meeting of Shareholders (Hitachi Kiden and Hitachi Industries) April 1, 2006 Date of Corporate Split and Merger April 3, 2006 Date of Registration of Corporate Split and Merger

Hitachi will split the relevant businesses without approval of the general meeting of shareholders of the Corporate Split Agreement, pursuant to regulations in Article 374-22, Paragraph 1 of the Commercial Code of Japan concerning simplified corporate separations.

(2) Method of Corporate Split and Merger

Parts of the Public & Municipal Systems Division (machinery-related system business) and Industrial Systems Division in Hitachi's Industrial Systems Group will be separated and transferred to Hitachi Plant. Hitachi Plant, Hitachi Kiden and Hitachi Industries will merge with the surviving company, Hitachi Plant. Hitachi Kiden and Hitachi Industries will be dissolved. The shares of Hitachi Kiden will be delisted in late March 2006.

(3) Number of Shares to Be Allocated Upon Corporate Split and Merger Ratio

Proposals for the number of shares to be allocated upon the corporate split and the merger ratio has been provided to Hitachi and Hitachi Industries by Nomura Securities Co., Ltd., to Hitachi Plant by Deloitte Tohmatsu FAS, and to Hitachi Kiden by KPMG FAS respectively. Based on discussions by the four companies with reference to the proposals, the companies agreed on the following, which, based on further discussions, may be adjusted if there is a significant change in the financial positions of the four companies between now and the merger date.

Number of Shares to Be Allocated Upon Corporate Split ---------------------------------------------------------------------- Hitachi Plant will allocate 11,591,000 shares of its common stock to Hitachi. ---------------------------------------------------------------------- Company Hitachi Hitachi Hitachi Plant Kiden Industries ---------------------------------------------------------------------- Merger Ratio 1 0.93 13.40 ----------------------------------------------------------------------

Note 1: Stock Allocation Ratio

-- 0.93 Hitachi Plant shares will be allocated for every 1

Hitachi Kiden share held. However, this may change based on

discussions among the four companies if there is a significant

change in their financial positions between now and the merger

date.

-- 13.40 Hitachi Plant shares will be allocated for every 1

Hitachi Industries share held. However, this may change based

on discussions among the four companies if there is a

significant change in their financial positions between now

and the merger date.

-- No allocation will be made with respect to 259,381 shares of

Hitachi Kiden common stock held by Hitachi Plant and Hitachi

Kiden treasury stock.

Note 2: Calculation Methods and Basis of Calculations Used by Third Parties

-- Nomura Securities has provided the proposal for the number of

shares to be allocated upon the corporate split and the merger

ratio with a comprehensive analysis of the calculation results

based on the market value method, peer company comparison

method and discounted cash flow method.

-- Deloitte Tohmatsu FAS has provided the proposal for the number

of shares to be allocated upon the corporate split and the

merger ratio with a comprehensive analysis of the calculation

results based on the market value method, peer company

comparison method and discounted cash flow method.

-- KPMG FAS has provided the proposal for the number of shares to

be allocated upon the corporate split and the merger ratio

with a comprehensive analysis of the calculation results based

on the market value method, peer company comparison and

discounted cash flow methods, etc.

(4) Interim Dividend

Hitachi, Hitachi Plant, Hitachi Kiden and Hitachi Industries can pay an interim dividend of no more than the amount listed below to shareholders recorded in their register of shareholders and beneficial shareholders or registered rights holders at the end of September 30, 2005.

Hitachi: 5.5 yen per share

Hitachi Plant: 6 yen per share

Hitachi Kiden: 5 yen per share

Hitachi Industries: 41.7 yen per share

(5) Payments

Hitachi Plant will pay 5 yen per 1 Hitachi Kiden common share held and 268.30 yen per 1 Hitachi Industries common share held as an equivalent to Hitachi Kiden's and Hitachi Industries' fiscal 2005 dividend within three months of the date of the merger. Payments will be made to shareholders recorded in each company's register of shareholders and beneficial shareholders or registered rights holders at the end of the day prior to the merger date. However, this may change based on discussions between the companies if there is a significant change in either of Hitachi Kiden's or Hitachi Industries' financial position between now and the merger date.

4. Outline of the New Company

5. Profile of the Companies Included in the Corporate Split (As of March 31, 2005) Hitachi Plant Name Hitachi, Ltd. Engineering & (Separating company) Construction Co., Ltd. (Assuming company) ------------------- ------------------------ ----------------------- Design, manufacturing Development, and construction of manufacture, sales and air-conditioning, service of information clean rooms, water systems, electrical treatment, dust Business Activities devices, electric power collection systems, and industrial systems, plants, industrial home electronics, equipment, materials, others and power plants and substations, and others ------------------- ------------------------ ----------------------- February 1, 1920 Established (Originally founded in June 10, 1929 1910) ------------------- ------------------------ ----------------------- 6-6, Marunouchi 1-chome, 1-14, Uchikanda 1- Principal Office Chiyoda-ku, Tokyo chome, Chiyoda-ku, Tokyo ------------------- ------------------------ ----------------------- Etsuhiko Shoyama, Hajime Ishiguro, President President, Chief President and Chief Executive Officer and Executive Officer and Director Director ------------------- ------------------------ ----------------------- Paid-in Capital 282,033 million yen 7,319 million yen ------------------- ------------------------ ----------------------- Shares of Common Stock Issued and 3,368,126,056 shares 117,831,101 shares Outstanding ------------------- ------------------------ ----------------------- Stockholders' 1,365,655 million yen 59,151 million yen Equity ------------------- ------------------------ ----------------------- Total Assets 3,752,522 million yen 164,403 million yen ------------------- ------------------------ ----------------------- Fiscal Year-end March 31 March 31 ------------------- ------------------------ ----------------------- Number of Employees 38,537 2,110 ------------------- ------------------------ ----------------------- Public-sector Hitachi, Ltd., public- manufacturing and non- sector manufacturing manufacturing and non-manufacturing Principal Customers industries as well as industries as well as government agencies government agencies both domestic and both domestic and overseas overseas ------------------- ------------------------ ----------------------- NATS CUMCO 6.41% Hitachi, Ltd. 54.69% Major Shareholders The Master Japan Trustee Trust Bank of Services Bank, Japan, Ltd. 5.77% Ltd. 4.29% Japan Trustee The Master Services Bank, Trust Bank of Ltd. 5.12% Japan, Ltd. 3.23% ------------------- ------------------------ ----------------------- Primary Trading Mizuho Corporate Bank, Mizuho Bank, Ltd. Banks Ltd. UFJ Bank Limited UFJ Bank Limited ------------------- ------------------------ ----------------------- Capital Hitachi owns 54.69% of Hitachi Plant -------------------------------------------------- Intercorporate 1 Hitachi director and 1 Relations Hitachi executive officer serve concurrently as directors of Hitachi Plant 2 directors and 5 executive officers from Hitachi to Human Resources Hitachi Plant (a) Personnel seconded from Hitachi to Hitachi Plant: 31; previously transferred personnel 51(b) Personnel seconded from Hitachi Plant to Hitachi: 46 -------------------------------------------------- Buying and selling of Transactions products, components and services ------------------- -------------------------------------------------- (a) One of the persons appointed from Hitachi as a director of Hitachi Plant also serves as an executive officer of Hitachi Plant. This person is included in the number of persons appointed from Hitachi as executive officers of Hitachi Plant. (b) As of September 31, 2005

6. Details of the Divisions to Be Split

Parts of the Public & Municipal Systems Division (machinery-related system business) and the Industrial Systems Division in Hitachi's Industrial Systems Group will be separated. Details of the assets and liabilities to be transferred to the new company will be announced as soon as they are determined.

7. Outline of the Companies to Be Merged (As of March 31, 2005) Hitachi Plant Engineering & Hitachi Kiden Hitachi Industries Name Construction Kogyo, Ltd. Co., Ltd. Co., Ltd. (Merging (Merging Company) (Surviving Company) Company) --------------- ----------------- ---------------- ------------------- Design, Manufacture and Development, manufacturing sales of manufacture, and construction cranes, construction and of air- environmental after-sales conditioning, equipment, service of clean rooms, Clean Material industrial Business water treatment, Handling machinery systems; Activities dust collection Systems, etc. development, systems, plants, manufacture and industrial sales of equipment, and electronics- power plants and related substations, and manufacturing others equipment; engineering, etc. --------------- ----------------- ---------------- ------------------- Established June 10, 1929 June 1, 1944 September 1, 1959 --------------- ----------------- ---------------- ------------------- 1-14, Uchikanda 4-1, Shimosakabe 13-17, Nakagawa 4- Principal 1-chome, 3-chome, chome, Adachi-ku, Office Chiyoda-ku, Amagasaki, Tokyo Tokyo Hyogo --------------- ----------------- ---------------- ------------------- Hajime Ishiguro, Hiroshi Koyama Shizuichi Sakamoto, President and President and President President Chief Executive Chief Executive Officer and Officer and Director Director --------------- ----------------- ---------------- ------------------- Paid-in Capital 7,319 million yen 2,613 million 5,000 million yen yen --------------- ----------------- ---------------- ------------------- Shares of 117,831,101 20,379,264 3,550,000 Common Stock shares shares shares Issued and Outstanding --------------- ----------------- ---------------- ------------------- Stockholders' 59,151 million 11,840 million 21,889 million Equity yen yen yen --------------- ----------------- ---------------- ------------------- Total Assets 164,403 million 23,692 million 89,700 million yen yen yen --------------- ----------------- ---------------- ------------------- Fiscal Year-end March 31 March 31 March 31 --------------- ----------------- ---------------- ------------------- Number of Employees 2,110 663 1,615 --------------- ----------------- ---------------- ------------------- Hitachi, Ltd., Hitachi, Ltd., Public-sector public-sector public-sector manufacturing and manufacturing manufacturing non-manufacturing and non- as well industries both Principal manufacturing as government domestic and Customers industries as agencies overseas well as both domestic government and overseas agencies both domestic and overseas --------------- ----------------- ---------------- ------------- Hitachi, Ltd. Hitachi, Ltd. Hitachi, Ltd. 54.69% 51.04% 100% Japan Trustee Major Services Bank, Shareholders Ltd. 4.29% The Master Trust Bank of Japan, Ltd. 3.23% --------------- ----------------- ---------------- ------------------- Mizuho Bank, Ltd. UFJ Bank Limited Mizuho Corporate Primary UFJ Bank Limited Resona Bank Bank, Ltd. Trading Limited The Bank of Tokyo- Banks Mitsubishi, Ltd. --------------- ----------------- ---------------- ------------------- Hitachi Plant owns 1.27% of Hitachi Capital Kiden Hitachi Kiden owns 0.00% (1,522 Intercorporate shares) of Hitachi Plant Relations ------------------------------------------------------ Human Resources None ------------------------------------------------------ Transactions Buying and selling of product components --------------- ------------------------------------------------------

8. Performance for the Past Three Fiscal Years (broken down by each company) (As of March 31, 2005) (Millions of yen (except where otherwise indicated)) Hitachi Plant Engineering & Hitachi, Ltd. Construction Co., (Separating Company) Ltd. (Assuming and Surviving Company) ---------------------------------------------------------------------- Fiscal March 31, March 31, March 31, March 31, March 31, March 31, year 2003 2004 2005 2003 2004 2005 ended ---------------------------------------------------------------------- Revenues 3,112,411 2,488,873 2,597,496 200,597 168,539 174,196 ---------------------------------------------------------------------- Operating income (loss) 53,741 7,548 (5,694) 2,939 2,427 1,914 ---------------------------------------------------------------------- Ordinary income 52,014 20,183 22,282 2,897 2,919 2,950 ---------------------------------------------------------------------- Net income 28,289 40,111 10,344 1,284 4,146 1,612 ---------------------------------------------------------------------- Net income per share (yen) 8.38 12.14 3.12 10.22 35.35 13.95 ---------------------------------------------------------------------- Dividend per share (yen) 6.00 8.00 11.00 10.00 10.00 13.00 ---------------------------------------------------------------------- Stockholders' equity per share (yen) 408.26 416.43 409.91 475.72 509.66 513.21 ----------------------------------------------------------------------

Hitachi Kiden Kogyo, Hitachi Industries Ltd. (Merging Company) Co., Ltd. (Merging Company) ---------------------------------------------------------------------- Fiscal March 31, March 31, March 31, March 31, March 31, March 31, year 2003 2004 2005 2003 2004 2005 ended ---------------------------------------------------------------------- Revenues 24,224 26,408 25,298 81,297 80,729 91,876 ---------------------------------------------------------------------- Operating income 691 468 786 2,186 412 1,607 ---------------------------------------------------------------------- Ordinary income (loss) 752 624 842 1,867 (226) 2,050 ---------------------------------------------------------------------- Net income (loss) 348 (207) 401 765 (447) 1,883 ---------------------------------------------------------------------- Net income (loss) per share 14.89 (10.23) 19.80 209 (131) 524 (yen) ---------------------------------------------------------------------- Dividend per share (yen) 8.50 5.00 10.00 107 90 371 ---------------------------------------------------------------------- Stockholders' equity per share (yen) 587.69 570.00 583.51 6,376 6,141 6,166 ----------------------------------------------------------------------

About Hitachi, Ltd.

Hitachi, Ltd., (NYSE: HIT/ TSE: 6501), headquartered in Tokyo, Japan, is a leading global electronics company with approximately 347,000 employees worldwide. Fiscal 2004 (ended March 31, 2005) consolidated sales totaled 9,027.0 billion yen ($84.4 billion). The company offers a wide range of systems, products and services in market sectors including information systems, electronic devices, power and industrial systems, consumer products, materials and financial services. For more information on Hitachi, please visit the company's website at http://www.hitachi.com

About Hitachi Plant Engineering & Construction Co., Ltd.

Hitachi Plant Engineering & Construction Co., Ltd. (TSE: 1970), headquartered in Tokyo, Japan, is a major general engineering and construction company with approximately 3,440(consolidated) employees. Fiscal 2004 (ended March 31, 2005) consolidated sales totaled 199,014 million yen ($1,859.944 million). The company provides design, manufacturing and construction of air-conditioning, clean rooms, water treatment, dust collection systems, plants, industrial equipment, and power plants and substations, and others. For more information on Hitachi Plant, please visit the company's website at http://www.hitachiplant.hbi.ne.jp

About Hitachi Kiden Kogyo, Ltd.

Hitachi Kiden Kogyo, Ltd., (TSE: 6354), headquartered in Amagasaki, Japan, is a monozukuri (manufacturing) company with approximately 770 employees. Fiscal 2004 (ended March 31, 2005) consolidated sales totaled 25.5 billion yen. The company offers environmental devices, material handling systems, cranes and electrical systems from engineering to maintenance service, including sales, design, production and installation.

About Hitachi Industries Co., Ltd.

Hitachi Industries Co., Ltd., headquartered in Tokyo, Japan, is rolling out extensive businesses to offer industrial machinery, electronics products and engineering services in fields ranging from micro technologies to large-scale system technologies. Fiscal 2004 (ended March 31, 2005) sales totaled 91.8 billion yen. For more information on Hitachi Industries, please visit the company's website at http://www.hitachi-hic.com

Source: Business Wire

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