50/50 JV between trading house ITOCHU and investment fund JIP to become largest shareholder in Hitachi Construction Machinery

In a major ownership change for Japans Hitachi Construction Machinery (HCM), one of the worlds leading suppliers of large mining excavators and haul trucks, a 50/50 joint venture between Japans trading major ITOCHU Corp andinvestment fundJapanIndustrial Partners, Inc (JIP) is to take control of 26% of the company through a share acquisition from Hitachi Ltd set to be completed in June 2022. Hitachi Ltd currently holds 51.5% of HCM. The JV will be known as JIP Consortium SPC.While HCM equipment will continue to use the Hitachi brand, and Hitachi Ltd will still own 25.4% of HCM (the remainder being held by general shareholders), HCM will now become an affiliate company of ITOCHU and an equity method associate of Hitachi but not consolidated by Hitachi. The agreement is worth 150 billion or over $1.3 billion.

Hitachi Ltd stated: WiththesupportofJapanIndustrialPartnersandITOCHU,HitachiConstructionMachinerywillcontribute to enhancing the value of theHitachibrand and expanding theLumada business byacceleratingitsglobalgrowth strategy. Hitachiwill continue toaimfor further expansion of the Lumada business by collaborating withHitachiConstructionMachineryinR&D such as IoT, andparts and servicesbusinessthat utilisesdigitaltechnologies.Hitachiplans todiscuss with HCM and enter into transition services agreementswithrespect to various rights and obligationsamongHCMand Hitachiand itsgroupcompanies,including the continued use of the Hitachi brand,by the closing date of theShare Transfer.

As a parent company, Hitachi says it has worked closely with HCM to support the companys growth. Currently, HCMs basic policy on growth strategy is to contribute to solving issues that itscustomers and the society face by developing a value chain business (parts and services, rentals, used equipment, etc) in addition to its new machinery business, with a focus on major construction machinery, such as excavators, wheel loaders, and dump trucks. Under the Realising Tomorrows Opportunities 2022, the management plan ending in fiscal year 2022, HCM is working to achieve sustainable growth and the enhancement of corporate value through the three pillars of its management strategy: (i) strengthening its value chain businesses, (ii) providing enhanced solutions at every point of contact with customers, and (iii) building a highly flexible corporate structure that is resilient to change.

It adds: Hitachi andHCMhaveconsideredmeasures to achieve further growth andenhancement ofcorporate value ofHCM.As part of the consideration, Hitachi engaged in discussionswith JIPand ITOCHU as new partners who can support the growth ofHCMfrom a mediumto longtermperspective. JIP hasanextensivetrack record ofinvestmentsandpartnershipsin Japan, andITOCHU hastheknowhow related to construction machinery andrelatedequipmentbusinesseswithin the group. Hitachi believes thatHCMs aiming for further growththrough collaboration withthe two companies with such strengthswill lead to anenhanced corporate value of HCM,andhascome to the conclusion thatHitachiwill transfera part of shares of HCM common stocksowned by HitachitoJIP Consortium SPC.

Hitachi will usetheproceedsobtained fromtheShareTransferas a source offunds forstrengtheningitsfinancialbase,returningtoitsshareholders,andinvestingingrowthopportunities, and willstrivetoenhanceitscorporate valueviasustainablegrowththrough socialinnovation business.

For its part, ITOCHUcontemplatesacceleratingmultifacetedbusinessesbygenerating synergies with its existing businesses andexpanding its value chain in collaboration withHitachi Construction Machinery in the United Statesand a variety of other geographical areas, as wellas a wide range of business domains. As an example,Hitachi Construction Machinery has been working to build its own distributor network immediately after reaching an agreement to dissolve its alliance with Deere & Company and contemplates generating synergies by rebuilding its sales channels and cross-selling products utilising ITOCHUs North American customer network.Hitachi Construction Machinery also plans to export Hitachi-branded hydraulic excavators to North America after the end of the Deere alliance and ITOCHU has commenced discussions with Hitachi Construction Machinery on a collaboration for higher supply chain efficiency, such as by sharing logistics utilising land and marine logistics networks between Japan and the United States and properly managing inventory in North America.

Hitachi Construction Machinery aims to contribute to the netzero emission initiative, on whichmining companies across the world are working, throughefforts relating tobatteryelectric dump trucksunder joint development with ABB Ltd, as well asefficiently operating anddigitising minesinorder to reduce costs and achieve a higher level of safetyin collaboration with the Hitachi group.ITOCHU will consider collaborating with Hitachi Construction Machinery through initiativesthat will assist in the contribution toand engagements withthe SDGs, includinginitiativesimplementedbyitsMetals&MineralsCompany, which owns interests in metal resources, andbyitsEnergy&ChemicalsCompany, which operatesthe energy storage systems(ESS)business.

ITOCHU stated: Theconstructionmachineryindustryisseeinganacceleratedflowfromownership(purchasing)touse (renting).This will require a business transformation to cater todiversifiedcustomer needs, including preventive maintenance and enhancement oftheuptimeratio by utilising construction machineryuptime data;online purchasesof newequipmentandpartsand salesof usedequipment;andsupportforrentals. ITOCHU willendeavor to providecustomers with new value by tapping into its existing business foundation andworkingwithHitachi Construction Machinery todeepen the solution business on which it focuses, based ona marketoriented perspective.

ITOCHU and its group company,Tokyo Century CorporationalreadymanageaconstructionmachineryfinancecompanyjointlywithHitachiConstructionMachineryin Indonesia.Tokyo CenturyandHitachi Construction Machinery manageaconstruction machinery finance company inThailandas well. ITOCHU and Tokyo Century alsoown business operators that provide financial services in the United States. Going forward,ITOCHU and Tokyo Century contemplate collaborating by providing financial services togetherwithHitachi Construction Machineryin the United States and a variety of other geographicalareas.