Showa Denko planning non-core divestitures upon completion of Hitachi Chemical acquisition – sources

10 April 2020

Showa Denko, the Tokyo-based chemical manufacturer, is preparing a slew of non-core business divestitures upon the successful completion of its acquisition of Hitachi Chemical, sources familiar with the situation said. The divestitures are expected to come from both companies, they noted.

  • Sellside beauty parades held towards end-2019/earlier this year
  • Potentially 15+ businesses that may be divested
  • COVID-19 so far not affecting portfolio reviews


Showa Denko, the Tokyo-based chemical manufacturer, is preparing a slew of non-core business divestitures upon the successful completion of its acquisition of Hitachi Chemical, sources familiar with the situation said. The divestitures are expected to come from both companies, they noted.


Showa Denko kicked off its tender offer for Hitachi Chemical on 24 March amid the novel coronavirus pandemic. It is offering JPY 4,630 per share to acquire a 100% stake in Hitachi Chemical for JPY 964.050bn (USD 8.7bn). The tender offer will run for 20 business days to 20 April. Hitachi will tender its entire 51.24% stake in Hitachi Chemical to the bid, as announced. 


Hitachi Chemical’s share price has held steady at around JPY 4,600 since 18 December, when Showa Denko announced that it would launch a recommended tender offer for Hitachi Chemical. 


There could be roughly 15 or more businesses, including subsidiaries and business units, at Showa Denko and Hitachi Chemical that overlap, the first source noted. It is widely expected that many non-core divestitures will come to the market at some point, he added. 


The second and third sources echoed this view, noting that a few sellside beauty parades had kicked off towards the end of last year and earlier this year, to appoint advisors for the eventual sale of certain non-core businesses. Any process is not expected to launch prior to the successful completion of the tender offer.


A Showa Denko spokesperson said that it is reviewing both companies’ business portfolios, but declined to elaborate. Showa Denko is currently reviewing businesses remotely due to COVID-19, but the outbreak is not expected to delay the process, the spokesperson noted.


Showa Denko’s CEO Kohei Morikawa noted during its earnings presentation on 13 February that Showa Denko will conduct sizeable divestitures due to the consolidation with Hitachi Chemical. 


Hitachi Chemical declined to comment. 


Hitachi Chemical’s powder metal business 


One of these beauty parades was to select a sellside advisor for Hitachi Chemical’s powder metal business, the second source said. It is considered a non-core business, several of the sources added. It could not be determined by the time of publication whether a sellside advisor was retained for the sale of this business.


Advisors have been pitching the powder metal business to potential buyers including private equity firms, the fourth source noted. 


Hitachi Chemical’s powder metal products business includes the manufacture of structural parts for automotive/motorcycle engines and bearings. 


Mikiya Yamada, senior analyst at Mizuho Securities, noted that the powder metal business as well as the automotive brake business may have limited synergies with the other advanced materials businesses that Showa Denko and Hitachi Chemical intend to focus on in the automotive segment. 


Hitachi Chemical’s lead-storage battery business


Hitachi Chemical’s lead-storage battery business for automobiles is widely considered to be a non-core business, the sources said. 


Private equity firms such as Brookfield and Apollo Global Management are likely to be among those keen on this business, the fifth source said. Japanese private equity firm Japan Industrial Partners (JIP) may also be interested, the sixth source added.


Brookfield and Apollo had been among those bidding for Wisconsin-based Johnson Controls International’s power solution business, which comprises lead-acid batteries for automobiles and others, when it was up for the sale in 2018, according to previous reports. Brookfield bagged the deal for USD 13.2bn, as announced.


Mizuho Securities’ Yamada noted that there are essentially two options for the lead-acid battery business – either acquire a peer to pursue scale or sell the business. That said, it is hard to imagine that Showa Denko would actively seek to shore up a non-core business, he noted.


This news service first reported in July 2019 that the lead-acid battery business was non-core and could be sold.


Life science business 


On the other hand, the sources held mixed views on whether Hitachi Chemical’s life science business could be divested going forward. 


Hitachi Chemical noted in a press release dated 23 March 2020 that Showa Denko considers the life science business as a growth driver in the mid- to long-term and that Showa Denko will provide support, including funding. 


That said, the first source noted that it could be an option for Showa Denko to sell Hitachi Chemical’s diagnostics (in-vitro diagnostic kits) business. It may, however, opt to retain the CDMO business as there is potential for global growth, he added.

A seventh source said he believes there could be a divestiture in the life sciences segment, but declined to elaborate further.

Elsewhere, an eighth source noted that other potential non-core businesses include Hitachi Chemical’s molded plastic parts for auto interiors and exteriors. A ninth source said that Hitachi Chemical’s printed wiring board materials business could be sold.

Hitachi Chemical announced on 28 January that it would sell its capacitor business (excluding the small-sized film capacitor business) and the evaporated film business to China-based Nantong Jianghai Capacitor, for an undisclosed sum.

This news service exclusively reported on 31 January 2019 that Hitachi was selecting a sellside advisor for the sale of its 51.2% stake in Hitachi Chemical as well as subsequently scooping on 6 November 2019 that Showa Denko was among shortlisted bidders in the second round of Hitachi Chemical’s auction process.

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