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Showa Denko considering deal for stake in Hitachi Chemical

Tokyo

JAPAN'S third-largest diversified chemicals maker is considering buying a stake in smaller rival Hitachi Chemical Co., sending the target's shares soaring in early Tokyo trading.

Hitachi Chemical jumped as much as 18 per cent, the biggest move since March, after Showa Denko K.K. issued a statement saying it hasn't decided yet on acquiring the Hitachi Chemical stake held by Hitachi Ltd. The Nikkei newspaper reported a sale was near in a deal that could reach 900 billion yen (S$11.2 billion). Showa Denko said it isn't the source of the Nikkei report.

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.

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Hitachi has been shedding non-core businesses to re-centre its group on manufacturing equipment and services that benefit from internet-of-things technologies.

If a deal between the two is announced, it would be the latest in a flurry of recent merger announcements. Asahi Kasei Corp. unveiled a deal to buy Denmark's Veloxis Pharmaceuticals A/S for US$1.3 billion, while Mitsubishi Corp. and Chubu Electric Power Co. were selected as preferred bidders for Dutch utility Eneco NV for about 4.1 billion euros (S$6.17 billion). LVMH clinched a deal to buy Tiffany & Co. for US$16.2 billion.

Hitachi Chemical had a market value of 722 billion yen before the report. Hitachi owns about 51 per cent of its chemicals unit, a holding valued at about US$3.4 billion.

The Nikkei reported that Showa Denko will buy Hitachi's stake in the subsidiary and make a tender offer for the rest of the company, which supplies materials for semiconductors and LCDs, as well as industrial materials and synthetic resins.

Hitachi shares rose as much as 3.6 per cent. 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 US$6.4 billion after reaching an agreement a year ago in its biggest-ever deal.

The manufacturer has also said it is considering options for Hitachi High-Technologies Corp., including making the electronics, medical and chip-making equipment company a wholly owned subsidiary. BLOOMBERG