TOKYO — Hitachi has given preferential negotiating rights regarding a sale of its metals unit to a consortium of investment funds led by Bain Capital, a possible deal estimated to top 800 billion yen ($7.27 billion), Nikkei learned on Wednesday.
Bain, Japan Industrial Partners and Japan Industrial Solutions are in talks for Hitachi’s roughly 53% stake in Hitachi Metals. The unit is currently listed on the Tokyo Stock Exchange.
Hitachi told Nikkei that it had not made any final decisions about a possible sale.
Hitachi seeks to transform itself into an information technology-focused company to drive future growth and better compete with overseas rivals like Siemens. It decided at the end of March to acquire U.S. digital engineering services company GlobalLogic for $9.6 billion.
Expecting little synergies between IT-focused operations and Hitachi Metals’ expertise in automotive and jet alloys, Hitachi began seeking buyers for the unit in late 2020. Several overseas funds have since placed a bid.
Hitachi has long been one of Japan’s electronics giants, once dominating the world with a wide array of appliances, from televisions to refrigerators.
But as companies from South Korea, Taiwan, and now China have entered the field, Japanese companies have been forced to enter more technologically advanced areas.
As part of its refocusing efforts, Hitachi has been selling off its legacy subsidiaries, with Hitachi Metals being the biggest one left. Since the 2008 financial crisis, Hitachi has sold off 20 of its 22 listed subsidiaries.
This sell-off provides a rich hunting ground for Wall Street firms like Bain, KKR, Carlyle and Apollo. KKR owns two former Hitachi units, Koki Holdings and Kokusai Electric. These investors buy the units, rehabilitate them financially and then aim to sell them to companies in the industry.
KKR, for example, was ready to sell Kokusai Electric to Applied Materials for $3.5 billion, but was stymied by Chinese regulators who blocked the deal. Because KKR spent $2.2 billion for Kokusai Electric, it would have generated a $1.3 billion profit four years after the purchase.
Hitachi Metals has long been considered one of Hitachi’s most important units, along with Hitachi Kasei, which Showa Denko acquired in 2020 and has renamed Showa Denko Materials, and Hitachi Cable, which merged into Hitachi Metals in 2013.
Its portfolio ranges from specialty alloys to magnets to fighter jet parts, and the company holds high market shares in a range of products. It is Japan’s top producer of tool steel, and is one of the world’s leading players in high-end ferrite magnets, like those used in motors.
But Hitachi Metals has faced headwinds recently, partly due to a massive loss in its magnet business. The company expects to have booked a record net loss for the second consecutive year through March totaling 46 billion yen. It announced in October that it would cut about 3,200 jobs, or roughly 10%, of its employees, including through a voluntary retirement scheme.