Proposed Hitachi, Mitsubishi merger will face anti-trust, regulatory challenges

Two of Japan’s oldest and most well-established conglomerates, Hitachi and Mitsubishi Heavy Industries, last week, have begun talks to merge their infrastructure operations in order to strengthen their global competitiveness. Experts say a merger between the industrial behemoths would challenge the likes of General Electric and Siemens, and also create a significant opportunity to spark a turnaround for low-performing Japanese businesses.

Some news reports suggest that if the heavyweights decide to merge, an industrial giant will be created with more than $150 billion in sales, second to GE. However, Reuters reports the unwanted attention generated from this long-anticipated move in Japan has led Hitachi and Mitsubishi to ‘walk away from talks’ as the companies started taking careful steps. The companies have not issued any statements relating to the merger talks.  

Industry experts seem to believe caution is the right path toward a successful strategic merger.

‘Japanese companies tend to be cautious by their nature and mergers were once frowned upon,’ says Professor Tom Saybolt, University of Detroit Mercy School of Law. ‘From a governance standpoint, companies in this region need to look at the way Western companies do business. It’s easier if one company is the buyer and the other is a seller – this makes communication between the two easier. What you don’t want to have is the so-called merger of equals.’

Saybolt, who had a 30-year career as an international and automotive lawyer with Ford Motor Company and served as general counsel and secretary of Ford of Europe, contends that the merger could have a series of implications for both companies and the Japanese economy. He points out that a ‘merger of equals’ would allow executives of both conglomerates to split executive power, which is not always a good thing.

‘Japanese companies are usually very decentralized, so it is difficult to figure out who is in charge, but it’ll be interesting to look at the way in which these companies handle downsizing,’ says the Detroit-based visiting professor. ‘Given that the culture allows lifetime employment, it’s hard to say how they [Hitachi and Mitsubishi] will manage two very complicated business structures going forward.’

Hitachi, has annual revenues of 9.3 trillion yen (US $117.7 billion), and says its telecommunications equipment, power systems and nuclear reactors are among its most profitable operations. Mitsubishi Heavy, which was established in 1884, is the builder of ships and trains, auto parts and defense machines, as well as power-generation systems.

Saybolt says the extent of the corporate governance issues the companies face will depend on how the deal is structured, but he warns that the companies will likely face significant antitrust and regulatory challenges because of the size of the proposed merged company. ‘It is important to keep in mind that both conglomerates are players globally, and trying to get antitrust permission globally to wherever they do business will be a long and complicated process,’ Saybolt says. And he predicts: ‘You’ll have regulatory folks in other countries scrutinizing this deal, as foreign investment can change.’