Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Hitachi Construction Machinery / Event-Driven

<p>Just as the lunch session started, the Nikkei came out with an <a href="https://www.nikkei.com/article/DGXMZO65359160T21C20A0MM0000/" target="_blank" rel="noopener">article</a> and the English language <a href="https://asia.nikkei.com/Business/Engineering-Construction/Hitachi-to-divest-some-of-its-Hitachi-Construction-shares" target="_blank" rel="noopener">version</a> came a half hour later. </p><p>The main points:</p><ul>
<li>Hitachi "will sell" a part (up to half) its 51% stake in <a href="https://www.smartkarma.com/entities/hitachi-construction-machinery" target="_blank" data-smartkarma-citation="entities:19433:1" rel="noopener">Hitachi Construction Machinery (6305 JP)</a>.</li>
<li>The Innovation Network Corporation of Japan and others are looking at buying a stake.</li>
<li>The sale may be done at a discount.</li>
<li>There is passing mention of the effort to sell <a href="https://www.smartkarma.com/entities/hitachi-metals-ltd" target="_blank" data-smartkarma-citation="entities:8561:1" rel="noopener">Hitachi Metals (5486 JP)</a> as well. </li>
</ul><p>The stock fell like a rock - down 15% or more in high volume. Hitachi Metals fell 6%. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/167/032/original/Screenshot%202020-10-23%20at%209.10.21%20PM.png?1603458637" class="editor-image img-responsive" data-smartkarma-image-id="167032"></figure><p></p></section><p>A denial from the JIC (the parent of the INCJ) <strong>*JIC: NOT CONSIDERING INVESTING IN HITACHI CONSTRUCTION</strong> did not lead to a bounce in HCM shares. </p><p>That is the key. The buyer doesn't matter. How the seller sells matters. This is interesting "news" and the reaction is telling. However, this headline comes just days before H1 earnings are due to be reported by HCM (27th October) and <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a> (28th). The last time we got a headline like that was *HITACHI MULLS CUTTING CROSS SHAREHOLDINGS, SELLING PROPERTIES on 29 May. That Bloomberg headline turned out to be an unsubtle read of something in the small print of a large presentation deck shown later that day as part of the earnings call (discussed in <a href="https://www.smartkarma.com/insights/hitachi-s-capital-case-liquidating-land-policy-holdings-what-about-the-subs" target="_blank" data-smartkarma-citation="insights:39920" rel="noopener">Hitachi's Capital Case - Liquidating Land &amp; Policy Holdings? What About the Subs?</a>). I expect the subject of this article to come up in the earnings discussion next week.  </p><p>There are a couple ways to look at this and it is not clear that the takeaway is that one should be bullish HCM. But it is worthwhile thinking about the permutations.</p><p>Discussion ensues.</p>

Just as the lunch session started, the Nikkei came out with an article and the English language version came a half hour later. The main points:
Hitachi "will sell" a part (up to half) its 51% stake in Hitachi Construction Machinery (6305 JP).
The Innovation Network Corporation of Japan and others are looking at buying a stake.
The sale may be done at a discount.
There is passing mention of the effort to sell Hitachi Metals (5486 JP) as well. 
The stock fell like a rock - down 15% or more in high volume. Hitachi Metals fell 6%. A denial from the JIC (the parent of the INCJ) *JIC: NOT CONSIDERING INVESTING IN HITACHI CONSTRUCTION did not lead to a bounce in HCM shares. That is the key. The buyer doesn't matter. How the seller sells matters. This is interesting "news" and the reaction is telling. However, this headline comes just days before H1 earnings are due to be reported by HCM (27th October) and Hitachi Ltd (6501 JP) (28th). The last time we got a headline like that was *HITACHI MULLS CUTTING CROSS SHAREHOLDINGS, SELLING PROPERTIES on 29 May. That Bloomberg headline turned out to be an unsubtle read of something in the small print of a large presentation deck shown later that day as part of the earnings call (discussed in Hitachi's Capital Case - Liquidating Land &amp; Policy Holdings? What About the Subs?). I expect the subject of this article to come up in the earnings discussion next week.  There are a couple ways to look at this and it is not clear that the takeaway is that one should be bullish HCM. But it is worthwhile thinking about the permutations.Discussion ensues.

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<p>The Nikkei reported today that Hitachi would sell about half of its stake in Hitachi Construction Machinery, surprising the market and us. We had expected HCM to be bought out and clearly the market had too as the stock was down 16.8%. We examine the implications below.</p>

The Nikkei reported today that Hitachi would sell about half of its stake in Hitachi Construction Machinery, surprising the market and us. We had expected HCM to be bought out and clearly the market had too as the stock was down 16.8%. We examine the implications below.

<p>Today after the close, <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a> announced the successful completion of the three tender offers for subsidiary/affiliates <a href="https://www.smartkarma.com/entities/keihin-corp" target="_blank" data-smartkarma-citation="entities:15395:1" rel="noopener">Keihin Corp (7251 JP)</a>, <a href="https://www.smartkarma.com/entities/showa-corp" target="_blank" data-smartkarma-citation="entities:15079:1" rel="noopener">Showa Corp (7274 JP)</a>, and <a href="https://www.smartkarma.com/entities/nissin-kogyo-co-ltd" target="_blank" data-smartkarma-citation="entities:20362:1" rel="noopener">Nissin Kogyo (7230 JP)</a>.</p>
<p>The resulting ownership changes are as follows:</p>
<table class="table table-striped">
<tbody>
<tr>
<td colspan="7" style="width: 641.714px;">
<h2>The State of the Honda Sub Residuals</h2>
</td>
<td style="width: 58.8571px;"></td>
</tr>
<tr>
<td style="width: 118.286px;"><strong>Stock</strong></td>
<td style="text-align: center; width: 96px;">
<strong>Announcement <br></strong>(click on the ogre to read the doc)</td>
<td style="text-align: center; width: 61.7143px;"><strong>Tender Doc</strong></td>
<td style="text-align: right; width: 56px;"><strong>TOB Price</strong></td>
<td style="text-align: right; width: 65.7143px;">
<strong>Pre-Tender</strong><br><strong>Ownership</strong>
</td>
<td style="text-align: right; width: 68.5714px;">
<strong>Post-Tender</strong><br><strong>Ownership</strong>
</td>
<td style="text-align: right; width: 52px;"><strong>Fast-Track<br>Delisting</strong></td>
<td style="text-align: right; width: 58.8571px;"><strong>Residual</strong></td>
</tr>
<tr>
<td style="width: 118.286px;">Keihin (7251)</td>
<td style="text-align: center; width: 96px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20201016_TSEfiling_e_1.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: center; width: 61.7143px;">
<h3><a href="https://www.keihin-corp.co.jp/en/ir/pdf/annualreport/annualreport2018.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: right; width: 56px;">¥2600/shr</td>
<td style="text-align: right; width: 65.7143px;">25.30%</td>
<td style="text-align: right; width: 68.5714px;">93.57%</td>
<td style="text-align: right; width: 52px;">
<p>Yes</p>
</td>
<td style="text-align: right; width: 58.8571px;">¥12.36bn</td>
</tr>
<tr>
<td style="width: 118.286px;">Showa Corp (7274)</td>
<td style="text-align: center; width: 96px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20201016_TSEfiling_e_2.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: center; width: 61.7143px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20200901_TSEfiling_e_2.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: right; width: 56px;">¥2300/shr</td>
<td style="text-align: right; width: 65.7143px;">33.14%</td>
<td style="text-align: right; width: 68.5714px;">92.13%</td>
<td style="text-align: right; width: 52px;">Yes</td>
<td style="text-align: right; width: 58.8571px;">¥13.75bn</td>
</tr>
<tr>
<td style="width: 118.286px;">Nissin Kogyo (7230)</td>
<td style="text-align: center; width: 96px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20201016_TSEfiling_e_3.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: center; width: 61.7143px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20200901_TSEfiling_e_3.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: right; width: 56px;">¥2250/shr</td>
<td style="text-align: right; width: 65.7143px;">31.61%</td>
<td style="text-align: right; width: 68.5714px;">92.44%</td>
<td style="text-align: right; width: 52px;">Yes</td>
<td style="text-align: right; width: 58.8571px;">¥11.07bn</td>
</tr>
</tbody>
</table>
<p>The results are a little surprising in that all the names managed to get to 92+%. This indicates that some of the passive-tracking TOPIX holders sold into the tender, or their shares were tendered by being borrowed. </p>
<p>This leaves a setup trade.</p>

Today after the close, Honda Motor (7267 JP) announced the successful completion of the three tender offers for subsidiary/affiliates Keihin Corp (7251 JP), Showa Corp (7274 JP), and Nissin Kogyo (7230 JP).
The resulting ownership changes are as follows:




The State of the Honda Sub Residuals




Stock

Announcement  (click on the ogre to read the doc)
Tender Doc
TOB Price

Pre-Tender Ownership


Post-Tender Ownership

Fast-Track Delisting
Residual


Keihin (7251)

👹


👹

¥2600/shr
25.30%
93.57%

Yes

¥12.36bn


Showa Corp (7274)

👹


👹

¥2300/shr
33.14%
92.13%
Yes
¥13.75bn


Nissin Kogyo (7230)

👹


👹

¥2250/shr
31.61%
92.44%
Yes
¥11.07bn



The results are a little surprising in that all the names managed to get to 92+%. This indicates that some of the passive-tracking TOPIX holders sold into the tender, or their shares were tendered by being borrowed. 
This leaves a setup trade.

Honda Tenders Done - Now For The Residuals

<p>At the end of March 2016, <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a>,  <a href="https://www.smartkarma.com/entities/hitachi-transport-system-ltd" target="_blank" data-smartkarma-citation="entities:2395:1" rel="noopener">Hitachi Transport System (9086 JP)</a>, and as-yet unlisted <a href="https://www.smartkarma.com/entities/sg-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26070:1" rel="noopener">SG Holdings (9143 JP)</a><a href="https://www.hitachi.com/New/cnews/month/2016/03/f_160330a.pdf" target="_blank" rel="noopener">announced</a> that Hitachi Transport and SG subsidiary, and well-known door-to-door delivery unit Sagawa Express would form a capital and business tie-up and would look to merge <em>"within three years"</em> (i.e. merger by 1 April 2019). </p><p>The deal was that Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted <em>delivery</em> subsidiary of then still-unlisted SG Holdings, and <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a> was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and "Smart Logistics" capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake <a href="https://www.smartkarma.com/entities/yamato-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:2:1" rel="noopener">Yamato Holdings (9064 JP)</a> in terms of revenue and get closer to industry top dog <a href="https://www.smartkarma.com/entities/nippon-express-co-ltd" target="_blank" data-smartkarma-citation="entities:18582:1" rel="noopener">Nippon Express (9062 JP)</a>. It was supposed to help SG improve margins by doing more in B2B. </p><p>SG IPOed in late 2017. Three years came and went. Nothing happened. There were collaborative projects started such as a "Japan-China integrated service" and "mutual utilisation of logistics facilities" such as e-commerce delivery hubs, but it was slow-going.</p><p>Some signs of discord have been clear for a while. If one reads between the lines one could have wondered what the point was even in 2016, but I expect there was hope that the two sides could get along. </p><p>In late May 2019 after the earnings presentation which marked the three year anniversary/deadline of a deal, and a new <a href="https://www.hitachi-transportsystem.com/en/ir/library/presentations/pdf/midtermmanagementplan_190524enR.pdf" target="_blank" rel="noopener">Mid-Term Management Plan</a> "Logisteed 2021" in which the forward-looking part had basically no mention of SG or Sagawa, the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration, <em>"I am aware that we are moving toward integration. I would like to harmonize future directions." </em>[Nikkei: He showed a positive attitude...]<em> "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."</em></p><p>Three years on and there had obviously been discussions about discussions, but the two sides hadn't made any commitment to starting discussions officially. </p><h2>The NEW News</h2><p>Today mid-day, Diamond Online released a scoop saying the capital and business tie-up between the two was going to be scrapped. </p><p>The first reaction was to send Hitachi Transport shares down 10+%. </p><p>Hitachi Transport's first release to the exchange said that the article wasn't based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares - which at that point were down 7% on the day - bounced sharply. </p><p>After the close it became clear there was a difference of opinion on what the "review of the level equity affiliation" actually meant. </p><p>The headline of the Hitachi Transport release says "Announcement of Partial Modification of the Strategic Capital and Business Alliance with SG Holdings and SAGAWA EXPRESS". It talks at some length about what has been accomplished in four and a half years of working together and then it notes the "modification of the capital tie-up."</p><ol>
<li>HTS will sell the 20% of Sagawa Express that it owns for ¥87.5bn. That trade will be executed on 29 Sep 2020. </li>
<li>HTS will buy back "a portion" of the shares that SG owns in a <a href="https://www.hitachi-transportsystem.com/jp/news/pdf/20200924_jikokabusikinoshutokukaituke.pdf" target="_blank" rel="noopener">ToSTNeT-3 transaction</a> the morning of 25 September. Reminder that SG owns 32.35mm shares of HTS or 29.00% of shares out. Tomorrow morning, HTS will buy back 27.675mm shares at the closing price on the 24 September of ¥3,570. That is up to 24.8% of shares out. </li>
</ol><p> That is a very big unwind in a very big hurry. </p><p>This creates some interesting side effects and they are well-worth thinking about. </p><p>More below the fold.</p>

At the end of March 2016, Hitachi Ltd (6501 JP),  Hitachi Transport System (9086 JP), and as-yet unlisted SG Holdings (9143 JP)announced that Hitachi Transport and SG subsidiary, and well-known door-to-door delivery unit Sagawa Express would form a capital and business tie-up and would look to merge "within three years" (i.e. merger by 1 April 2019). The deal was that Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary of then still-unlisted SG Holdings, and Hitachi Ltd (6501 JP) was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and "Smart Logistics" capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake Yamato Holdings (9064 JP) in terms of revenue and get closer to industry top dog Nippon Express (9062 JP). It was supposed to help SG improve margins by doing more in B2B. SG IPOed in late 2017. Three years came and went. Nothing happened. There were collaborative projects started such as a "Japan-China integrated service" and "mutual utilisation of logistics facilities" such as e-commerce delivery hubs, but it was slow-going.Some signs of discord have been clear for a while. If one reads between the lines one could have wondered what the point was even in 2016, but I expect there was hope that the two sides could get along. In late May 2019 after the earnings presentation which marked the three year anniversary/deadline of a deal, and a new Mid-Term Management Plan "Logisteed 2021" in which the forward-looking part had basically no mention of SG or Sagawa, the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration, "I am aware that we are moving toward integration. I would like to harmonize future directions." [Nikkei: He showed a positive attitude...] "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."Three years on and there had obviously been discussions about discussions, but the two sides hadn't made any commitment to starting discussions officially. The NEW NewsToday mid-day, Diamond Online released a scoop saying the capital and business tie-up between the two was going to be scrapped. The first reaction was to send Hitachi Transport shares down 10+%. Hitachi Transport's first release to the exchange said that the article wasn't based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares - which at that point were down 7% on the day - bounced sharply. After the close it became clear there was a difference of opinion on what the "review of the level equity affiliation" actually meant. The headline of the Hitachi Transport release says "Announcement of Partial Modification of the Strategic Capital and Business Alliance with SG Holdings and SAGAWA EXPRESS". It talks at some length about what has been accomplished in four and a half years of working together and then it notes the "modification of the capital tie-up."
HTS will sell the 20% of Sagawa Express that it owns for ¥87.5bn. That trade will be executed on 29 Sep 2020. 
HTS will buy back "a portion" of the shares that SG owns in a ToSTNeT-3 transaction the morning of 25 September. Reminder that SG owns 32.35mm shares of HTS or 29.00% of shares out. Tomorrow morning, HTS will buy back 27.675mm shares at the closing price on the 24 September of ¥3,570. That is up to 24.8% of shares out. 
 That is a very big unwind in a very big hurry. This creates some interesting side effects and they are well-worth thinking about. More below the fold.

Hitachi Transport & SG Holdings:  Consciously Uncoupling

<p>In May 2016, <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a>  <a href="https://www.hitachi.com/New/cnews/month/2016/05/f_160513a.pdf" target="_blank" rel="noopener">announced</a> a transaction whereby they sold a stake in <a href="https://www.smartkarma.com/entities/hitachi-capital-corp" target="_blank" data-smartkarma-citation="entities:14410:1" rel="noopener">Hitachi Capital (8586 JP)</a> to <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-lease-finance" target="_blank" data-smartkarma-citation="entities:1467:1" rel="noopener">Mitsubishi UFJ Lease &amp; Finance (8593 JP)</a> to de-consolidate their holding, but would retain a 'negative control' stake of 33.4%. The result was a business and capital alliance designed to achieve more scale for the leasing companies and to improve the capital efficiency of Hitachi itself. </p><p>The moves by Hitachi to improve its capital efficiency have come fast and furious the last few years with sales of <a href="https://www.smartkarma.com/entities/hitachi-kokusai-electric-inc" target="_blank" data-smartkarma-citation="entities:2523:1" rel="noopener">Hitachi Kokusai Electric (6756 JP)</a>, <a href="https://www.smartkarma.com/entities/hitachi-koki-co-ltd" target="_blank" data-smartkarma-citation="entities:18359:1" rel="noopener">Hitachi Koki (6581 JP)</a>, <a href="https://www.smartkarma.com/entities/hitachi-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:14457:1" rel="noopener">Hitachi Chemical (4217 JP)</a>, a buy-in of <a href="https://www.smartkarma.com/entities/hitachi-high-tech-corporation" target="_blank" data-smartkarma-citation="entities:7046:1" rel="noopener">Hitachi High-Tech (8036 JP)</a>, and a selldown to de-consolidate <a href="https://www.smartkarma.com/entities/hitachi-transport-system-ltd" target="_blank" data-smartkarma-citation="entities:2395:1" rel="noopener">Hitachi Transport System (9086 JP)</a> in 2016, and now more recently there is media speculation about the eventual disposition of <a href="https://www.smartkarma.com/entities/hitachi-metals-ltd" target="_blank" data-smartkarma-citation="entities:8561:1" rel="noopener">Hitachi Metals (5486 JP)</a> and <a href="https://www.smartkarma.com/entities/hitachi-construction-machinery" target="_blank" data-smartkarma-citation="entities:19433:1" rel="noopener">Hitachi Construction Machinery (6305 JP)</a>.</p><p>When earnings were presented in May this year, there was a small section in the presentation deck on the bottom half of p15 of the Update on the Mid-Term Management Plan <a href="http://www.hitachi.com/New/cnews/month/2020/05/200529a/f_200529apre.pdf" target="_blank" rel="noopener">presentation </a>(the <a href="http://www.hitachi.co.jp/New/cnews/month/2020/05/0529a/f_0529apre.pdf" target="_blank" rel="noopener">Japanese</a> version has an extra word which helps clarify) talking about sales of property and assets and this got people excited. I went through it in some detail in <a href="https://www.smartkarma.com/insights/hitachi-s-capital-case-liquidating-land-policy-holdings-what-about-the-subs" target="_blank" data-smartkarma-citation="insights:39920" rel="noopener">Hitachi's Capital Case - Liquidating Land &amp; Policy Holdings? What About the Subs?</a> and that indicated there was time for the remaining subs.</p><h2>The NEW News</h2><p>Today during business hours, there was a news story out on Diamond Online followed by a quick story on Bloomberg saying that <a href="https://www.smartkarma.com/entities/hitachi-capital-corp" target="_blank" data-smartkarma-citation="entities:14410:1" rel="noopener">Hitachi Capital (8586 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-lease-finance" target="_blank" data-smartkarma-citation="entities:1467:1" rel="noopener">Mitsubishi UFJ Lease &amp; Finance (8593 JP)</a> had decided to merge, and <a href="https://www.smartkarma.com/entities/mitsubishi-corp" target="_blank" data-smartkarma-citation="entities:20668:1" rel="noopener">Mitsubishi Corp (8058 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> would each own 20% of the new merged company. </p><p>The <a href="https://www.hitachi-capital.co.jp/hcc/english/newsrelease/2020/20200924e.pdf" target="_blank" rel="noopener">announcement</a> came after the close. The two companies would merge at a share exchange ratio of 1.0:5.1, with the effective date of the Merger on 1 April 2021, and shareholder meetings for each company to approve the deal in late February 2021, but it does not discuss the idea of Mitsubishi Corp owning 20% of the combined company (it already owns 20% of MUFJ Lease but its stake would be diluted in the merger.</p><p>As always, more below the fold.</p>

In May 2016, Hitachi Ltd (6501 JP)  announced a transaction whereby they sold a stake in Hitachi Capital (8586 JP) to Mitsubishi UFJ Financial (MUFG) (8306 JP) and Mitsubishi UFJ Lease &amp; Finance (8593 JP) to de-consolidate their holding, but would retain a 'negative control' stake of 33.4%. The result was a business and capital alliance designed to achieve more scale for the leasing companies and to improve the capital efficiency of Hitachi itself. The moves by Hitachi to improve its capital efficiency have come fast and furious the last few years with sales of Hitachi Kokusai Electric (6756 JP), Hitachi Koki (6581 JP), Hitachi Chemical (4217 JP), a buy-in of Hitachi High-Tech (8036 JP), and a selldown to de-consolidate Hitachi Transport System (9086 JP) in 2016, and now more recently there is media speculation about the eventual disposition of Hitachi Metals (5486 JP) and Hitachi Construction Machinery (6305 JP).When earnings were presented in May this year, there was a small section in the presentation deck on the bottom half of p15 of the Update on the Mid-Term Management Plan presentation (the Japanese version has an extra word which helps clarify) talking about sales of property and assets and this got people excited. I went through it in some detail in Hitachi's Capital Case - Liquidating Land &amp; Policy Holdings? What About the Subs? and that indicated there was time for the remaining subs.The NEW NewsToday during business hours, there was a news story out on Diamond Online followed by a quick story on Bloomberg saying that Hitachi Capital (8586 JP) and Mitsubishi UFJ Lease &amp; Finance (8593 JP) had decided to merge, and Mitsubishi Corp (8058 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) would each own 20% of the new merged company. The announcement came after the close. The two companies would merge at a share exchange ratio of 1.0:5.1, with the effective date of the Merger on 1 April 2021, and shareholder meetings for each company to approve the deal in late February 2021, but it does not discuss the idea of Mitsubishi Corp owning 20% of the combined company (it already owns 20% of MUFJ Lease but its stake would be diluted in the merger.As always, more below the fold.

Hitachi's Hitachi Capital Capital Case - A Merger With MUFG Lease

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

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