Mitsui Group Firms Plan Merger

A merger of Mitsui Petrochemical Industries Ltd and Mitsui Toatsu Chemicals Inc of the Mitsui conglomerate would be good for both by enabling them to cut staff and production costs and pour resources into other potentially lucrative fields such as pharmaceuticals, analysts said.

The two companies announced on Monday that they are considering merging as early as October 1997, but said details had yet to be finalised.

The Tokyo Stock Exchange suspended trading of the two companies' shares yesterday, following a report by the business daily Nihon Keizai Shimbun that the two had agreed on a merger and Mitsui Toatsu would be dissolved.

 

It said 0.5 to 0.6 Mitsui Petrochemical share would be exchanged for one Toatsu share.

If they merge, it would be a considerable advantage for the two Mitsui companies, said Masami Sawato, an analyst at BZW Research.

The two firms' aggregate capacity for phenol production would be the world's second-largest, making up nine per cent of the world market and half that in Japan, Sawato said. Phenol is used to make industrial parts and in farm chemicals.

Sawato said a merger would help the companies by enabling them to cut their work forces and rationalise production costs.

The October 1994 merger of Mitsubishi group chemical firms to create Mitsubishi Chemical Corp, currently Japan's largest chemical firm, is expected to have helped it cut operational costs by 40 billion yen ($366 million) in the current business year to next March 31, he said.

The Mitsui group firms have been lagging behind other chemical companies in restructuring and cost reduction.

The merger will likely speed up their efforts, said Sawato.

Analysts also said the two would be able to increase resources for development of non-petrochemical products such as pharmaceuticals and agricultural chemicals through a merger.

The merger will enable them to also consolidate resources to actively invest in Asia, said Takashi Sawada, an analyst at Nikko Research Centre.

Japanese chemical firms face increasingly fierce rivalry in Asia from giant chemical companies from Europe and the United S tates eyeing the region for possible expansion, analysts said.

A merger would also receive the Japanese government's blessing. The ministry of international trade has been promoting mergers in the chemical industry to boost competitiveness against European and US rivals.

A ministry official said the government would welcome the Mitsui firms' merger and vowed to support their efforts.

But Sawada said: The new company likely to be created through the merger is still small compared with European and US giants such as Hoechst AGand Dupont, which have annual sales of two to three trillion yen ($27.5 billion).

A merger would create a comprehensive chemical producer with annual parent sales of more than 700 billion yen ($6.42 billion), analysts said.