Japanese Firms Get Rolling on Acquisitions

Nippon Steel & Sumitomo Metal will buy Swedish counterpart Ovako Group and intends to turn equity-method affiliate Sanyo Special Steel into a subsidiary, forging ahead with a long-awaited business expansion as market conditions have improved.

“Both companies have the world’s top-level production technologies,” Toshiharu Sakae, a Nippon Steel executive vice president, told reporters Thursday as the deals were announced. “We hope that the three companies will work together and combine technologies to strengthen the business foundation,” Nikkei reported.

The Japanese company plans to raise its 15.3% stake in Sanyo Special Steel to at least 51% by the end of March 2019. This purchase would cost around 30 billion yen ($282 million) based on the current share price. Sanyo Special Steel will remain on the stock market even after the transaction.

The two steelmakers share a long history. When Sanyo Special Steel filed for bankruptcy protection in the 1960s, Nippon Steel predecessor Fuji Iron & Steel lent support for the rehabilitation.

With Ovako, Nippon Steel plans to obtain the entire stake in the first half of fiscal 2018 from a European investment fund, spending tens of billions of yen.

Sanyo Special Steel and Ovako are top manufacturers of bearing steel, used in automobiles and other equipment, in their respective home regions of Asia and Europe.

The company ranked second globally in crude steel output when it was created in October 2012 through a merger of Nippon Steel and Sumitomo Metal Industries. But the rise of Chinese rivals has pushed the Japanese steelmaker to No. 4 in the world, damaging its ability to compete on scale.

Nippon Steel’s earnings have diminished since the merger. Fiscal 2016 sales fell 17% from the combined total of the two predecessors in fiscal 2011, while pretax profit shrank 14%.

Meanwhile, Kobe Steel’s new president on Friday said he may seek mergers or alliances outside the company for one or more of its business divisions, as he battles to repair damage from a data fraud scandal that roiled Japanese industry, Reuters reported.

Mitsugu Yamaguchi faces a difficult challenge to rebuild credibility at the 112-year-old steelmaker, which sent shockwaves through global supply chains after revealing widespread tampering of specifications on products used in planes, trains and automobiles.

While no safety issues have been identified and the company’s shares have recovered much of their sharp losses from the early days of the scandal, Kobe Steel faces a US Department of Justice investigation that may yet prove costly.

Consumers in the US and Canada have also filed lawsuits against Japan’s third-largest steelmaker.