Showa Denko Said to Be Preferred Bidder for Hitachi Chemical

(Bloomberg) -- Japan’s third-largest diversified chemicals maker Showa Denko K.K. is the preferred bidder for a stake in smaller rival Hitachi Chemical Co., a person with knowledge of the matter said, a deal that the Nikkei newspaper said could be worth as much as 900 billion yen ($8.2 billion).

Hitachi Chemical jumped as much as 17% in Tokyo, the biggest gain since March, after Showa Denko issued a statement saying it is considering an acquisition, adding that it hasn’t decided yet on buying the stake from parent Hitachi Ltd. Hitachi Chemical’s board agreed to negotiate with Showa Denko in what will probably be a tender offer that will include the rest of the company’s publicly listed shares, said the person, asking not to be identified because the information isn’t public.

An acquisition of that scale would be the largest yet for Showa Denko, and would boost the company’s revenue from advanced automotive batteries and functional materials, two segments that are growing fast as carmakers race to make more electric-powered vehicles. Hitachi has been shedding non-core businesses to re-center its group on manufacturing equipment and services that benefit from internet-of-things technologies.

The Nikkei earlier reported that the the parties were nearing a deal; Showa Denko said it isn’t the source of the Nikkei report. Hitachi Chemical had a market value of 722 billion yen before the report.

If a deal between Showa Denko and Hitachi is announced, it would be the latest in a flurry of recent merger announcements. On Monday, Asahi Kasei Corp. unveiled a deal to buy Denmark’s Veloxis Pharmaceuticals A/S for $1.3 billion, while LVMH clinched a deal to buy Tiffany & Co. for $16.2 billion. On the same day, Mitsubishi Corp. and Chubu Electric Power Co. were selected as preferred bidders for Dutch utility Eneco NV for about 4.1 billion euros ($4.5 billion).

Hitachi owns about 51% of its chemicals unit, a holding with a market value of about $3.4 billion. The subsidiary supplies materials for semiconductors and LCDs, as well as synthetic resins. Hitachi issued a statement saying that it wasn’t the source of the Nikkei report and is considering various options for its business.

The shares of Hitachi rose as much as 3.6%. As Hitachi shifts its focus toward power grids and data management, it is on track to buy ABB Ltd.’s power grid division for about $6.4 billion after reaching an agreement a year ago in its biggest-ever deal. The manufacturer has also said it’s considering options for Hitachi High-Technologies Corp., including making the electronics, medical and chip-making equipment company a wholly owned subsidiary.

--With assistance from Masumi Suga.

To contact the reporter on this story: Takako Taniguchi in Tokyo at ttaniguchi4@bloomberg.net

To contact the editors responsible for this story: Emma O'Brien at eobrien6@bloomberg.net, Reed Stevenson, Dave McCombs

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