Tokyo: Japan’s Hitachi Ltd will launch a $2.9 billion bid for five of its listed units to help it return to growth, even as a tumble to a quarterly net loss eats into its capital and intensifies pressure to raise funds. Japan’s biggest electronics maker is trying to consolidate its sprawling operations as it faces its third straight year of losses and weaker finances, shifting its focus to growth in its power systems and infrastructure.
Hitachi said on Tuesday it will launch tender offers next month to buy the shares it does not already own in Hitachi Maxell, Hitachi Plant Technologies Ltd, Hitachi Information Systems Ltd, Hitachi Software Engineering Co and Hitachi Systems & Services Ltd.
Hitachi will pay for the shares almost entirely with cash, with the exception of a 5% stake in Hitachi Plant Technologies for which it will conduct a share swap.
The announcement, along with Hitachi’s fall to a quarterly loss amid weak microchip and electronics sales, sent its shares down 4% even as those of its units jumped from the buyout effect.
“Losses will likely continue in the second quarter, and, along with the tender offer could deplete Hitachi’s cash by ¥300 to 400 billion — to almost half what it was at the end of March — if no new funds come in,” said Yuichi Ishida, an analyst at Mizuho Investors Securities.
Large losses from flat TVs overseas and semiconductors have already torn into Hitachi’s capital base, halving its shareholders’ equity ratio in a year and putting pressure on it to raise money.
Hitachi executive vice president Takashi Miyoshi said it would be able to cover the cost of the tender offer with commitment lines from its creditors.
“If Hitachi tries to raise funds, it will be a hard sell right now, since it has yet to put forward a convincing road map back to profitability,” Mizuho Investor’s Ishida said.
Hitachi, a sprawling conglomerate with more than 900 group firms and 16 listed subsidiaries, is betting on the revenue inflow to its bottom line after making the five units wholly owned, as well as on faster time-to-market by joining its group-wide operations in system integration and batteries.
Hitachi, which lost $8 billion in the past business year — a record for a Japanese manufacturer — has said that a boost from public funds to bolster Renesas Technology is a possibility under legislation to help companies hit by the global financial crisis.
Rensas, its microchip joint venture with Mitsubishi Electric, is to merge with NEC Electronics.
The government has already said it will back chip maker Elpida Memory Inc with funds.
Hitachi stuck to its forecast for a net loss of ¥270 billion for the year to March — missing the consensus average for a ¥246 billion loss by 13 analysts polled by Thomson Reuters — even as rivals Fujitsu Ltd and NEC Corp predict a return to profit.
Hit by weak sales of its flat TVs, microchips, car-making equipment and construction machinery, it reported a net loss of ¥82.7 billion for April-June, its fiscal first quarter.
That compared with a profit of ¥31.6 billion in the same period last year, and just missed an estimate by JP Morgan for a loss of ¥79.9 billion.
Some investors jumped on Hitachi shares on Monday on news of its plans to absorb the units, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
“But they looked at the earnings figures today and realised they can’t buy it,” he said.
Hitachi posted an operating loss of ¥50.6 billion, down from a profit of ¥77.7 billion in the same quarter last year, on a 26% sales decline.
Hitachi’s shares lost 3.6% on Tuesday, against a 1% fall in Tokyo’s electrical machinery sub-index.