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Hitachi wants to be high-tech again. Selling Hitachi Metals to a Bain Capital-led consortium is one of final steps in a transformation that has been a long time coming.
The Japanese materials conglomerate is in talks to hand over the metals unit to the consortium, for which the US private equity group has exclusive negotiating rights. Hitachi plans to sell its roughly 53 per cent stake. Its subsidiary had an equity value of ¥815bn ($7.4bn) as of Thursday’s close.
For Hitachi, the disposal would be a good move. It has already sold 20 listed subsidiaries. Its stake in Hitachi Metals is one of the largest it still holds. It is right to take advantage of a recent surge in dealmaking and liquidity. The proceeds will help to cover its recent $9.6bn takeover of US digital services company GlobalLogic.
Hitachi Metals has been struggling. First came a scandal involving falsified quality control test reports and then the pandemic. Demand for speciality steel for aircraft and consumer electronics components fell, dragging on the business.
As a result, Hitachi Metals expects to log its second consecutive record net loss for the year ending in March. Return on equity has plunged from 14 per cent five years ago to minus 6.4 per cent at the end of 2020, according to S&P Global data.
Like Hitachi and other overburdened local conglomerates, shares of Hitachi Metals trade at a price-to-book ratio of just 1.7 times — a discount to global peers. Bain should be able to close that gap.
For Bain, Hitachi Metals has potential. Its advanced metals, magnetic materials and electronics units makes components for a wide range of products including battery cases and magnetic materials used in electric cars. This should benefit from demand growth over the five-year private equity investment horizon.
Expect the deal to go ahead. The consortium includes Tokyo-based private equity firm Japan Industrial Partners and Japan Industrial Solutions, a local investment management firm. Foreign buyers would have faced government approval concerns around defence equipment material contracts. Domestic participants should be able to clear those hurdles with ease.
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