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 Japan’s Hitachi Construction Machinery (HCM), one of the world’s leading suppliers of large mining excavators and haul trucks, a 50/50 joint venture between Japan’s trading major ITOCHU Corp and investment fund Japan Industrial 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: “With the support of Japan Industrial Partners and ITOCHU, Hitachi Construction Machinery will contribute to enhancing the value of the Hitachi brand and expanding the Lumada business by accelerating its global growth strategy. Hitachi will continue to aim for further expansion of the Lumada business by collaborating with Hitachi Construction Machinery in R&D such as IoT, and parts and services business that utilises digital technologies.” Hitachi plans to discuss with HCM and enter into transition services agreements with respect to various rights and obligations among HCM and Hitachi and its group companies, including the continued use of the Hitachi brand, by the closing date of the Share Transfer.

As a parent company, Hitachi says it has worked closely with HCM to support the company’s growth. Currently, HCM’s basic policy on growth strategy is to contribute to solving issues that its customers 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 Tomorrow’s 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 and HCM have considered measures to achieve further growth and enhancement of corporate value of HCM. As part of the consideration, Hitachi engaged in discussions with JIP and ITOCHU as new partners who can support the growth of HCM from a medium to longterm perspective. JIP has an extensive track record of investments and partnerships in Japan, and ITOCHU has the knowhow related to construction machinery and related equipment businesses within the group. Hitachi believes that HCM‘s aiming for further growth through collaboration with the two companies with such strengths will lead to an enhanced corporate value of HCM, and has come to the conclusion that Hitachi will transfer a part of shares of HCM common stocks owned by Hitachi to JIP Consortium SPC.”

Hitachi will use the proceeds obtained from the Share Transfer as a source of funds for strengthening its financial base, returning to its shareholders, and investing in growth opportunities, and will strive to enhance its corporate value via sustainable growth through social innovation business.

For its part, ITOCHU contemplates accelerating multifaceted businesses by generating synergies with its existing businesses and expanding its value chain in collaboration with Hitachi Construction Machinery in the United States and a variety of other geographical areas, as well as 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 ITOCHU’s 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 which mining companies across the world are working, through efforts relating to battery electric dump trucks under joint development with ABB Ltd, as well as efficiently operating and digitising mines in order to reduce costs and achieve a higher level of safety in collaboration with the Hitachi group. ITOCHU will consider collaborating with Hitachi Construction Machinery through initiatives that will assist in the contribution to and engagements with the SDGs, including initiatives implemented by its Metals & Minerals Company, which owns interests in metal resources, and by its Energy & Chemicals Company, which operates the energy storage systems (ESS) business.

ITOCHU stated: “The construction machinery industry is seeing an accelerated flow from ownership (purchasing) to use (renting). This will require a business transformation to cater to diversified customer needs, including preventive maintenance and enhancement of the uptime ratio by utilising construction machinery uptime data; online purchases of new equipment and parts and sales of used equipment; and support for rentals. ITOCHU will endeavor to provide customers with new value by tapping into its existing business foundation and working with Hitachi Construction Machinery to deepen the solution business on which it focuses, based on a marketoriented perspective.”

ITOCHU and its group company, Tokyo Century Corporation already manage a construction machinery finance company jointly with Hitachi Construction Machinery in Indonesia. Tokyo Century and Hitachi Construction Machinery manage a construction machinery finance company in Thailand as well. ITOCHU and Tokyo Century also own business operators that provide financial services in the United States. Going forward, ITOCHU and Tokyo Century contemplate collaborating by providing financial services together with Hitachi Construction Machinery in the United States and a variety of other geographical areas.