Sumitomo-Mitsui Merger Moves Into High Gear

30 April 2001 00:00  [Source: ICB Americas]

By Mike McPadden

Japanese majors Sumitomo Chemical Company Ltd. and Mitsui Chemicals Inc. have revamped their plans for the completion of their highly touted merger. Newly revealed steps include moving the date of the merger's completion, creating a joint venture for their polyolefins business this October, and cutting 20 percent of the combined companies' total staff by March 2004. In addition, a holding company will be created on October 1, 2003, for a joint transfer of shares.

The companies have also settled on a name for their giant-in-the-making--Sumitomo Mitsui Chemical Company Ltd. The headquarters will be in Minato-ku, Tokyo.

Sumitomo and Mitsui agreed to merge in November 2000 (CMR 11/20/2000, pg. 3) The deal came on the heels of recent, successful joint ventures between the companies, such as Evolue Company of Japan Ltd. in 1996, The Japan Polstyrene Company Ltd. in 1997, and Nippon A&L Inc. in 1999.

Initially, the merger was to have been completed by October 2003. Last week, a Sumitomo spokesperson said that the deal will now be finalized sometime by the end of March 2004.

A Sumitomo official said that the extra months would allow for "smoother integration and improved efficiency" as part of a "drastic reorganization" effort, and that the company felt positive about taking the extra time.

As a first step, the companies will combine their polyolefins operations into a 50/50 joint venture to be launched October 1, 2001. The resulting entity, Sumitomo Mitsui Polyolefin Company, will have an initial paid-in-capital of $56.8 million. All the polyethylene and polypropylene operations of Sumitomo and Mitsui will be absorbed into the new company. In October 2003, all shares in the business will be transferred to a holding company, which will be publicly listed.

Sumitomo Mitsui Polyolefin is set to expand almost immediately. In Singapore, the company will double its ethylene capacity to 2 million tons per year. It will be equipped to also handle phenol, propylene oxide and other derivatives in addition to polyolefins.

Analysts project that sales for Sumitomo Mitsui Polyolefin will be $2.45 billion in the fiscal year ending March 31, 2004. This figure also incorporates the net sales of The Polyolefin Company in Singapore and Mitsui's Hong Kong-based Hi-Polymer Asia. Individually, the companies expect to earn combined sales of $19.6 billion in sales in 2003 and recurring income of $155.6 million. Their target numbers for 2006 are $24.5 billion in sales and $204.7 million in profits.

The merged company will also reduce staff. "Sumitomo and Mitsui plan to cut their combined work force by 300 to about 10,500 before the firms actually become a single entity by March 31, 2004," says Sumitomo, which hopes that the reductions will save $214 million annually by 2004. In total, about 2,000 jobs will be eliminated.

Analysts seem to be taking a favorable view of the new plan. Moody's Investor Services upgraded Mitsui's senior unsecured debt ratings to Baa2 from Baa3. Overall, Moody's rated the company's outlook "stable," and praised swift, smooth merger between Mitsui Petrochemicals and Mitsui Toatsu in October 1997.

One analysts is optimistic. "I think the extra five or six months they're allowing themselves is a good thing. There was some talk that it was a sign of weakness, but I disagree. In fact, it's hard to pinpoint where the potential pitfalls might be." He adds that "Sumitomo had an amazing 2000" in which the company's profits soared 70 percent.

Sumitomo says that there are no plans "right now" to eliminate any existing facilities or operations.

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