Mitsui Shipbuilding Gains 21 Percent on Report of Merger Talks with KHI

(Bloomberg) — Mitsui Engineering & Shipbuilding Co. surged to 5 1/2-year high on a Nikkei report it plans to hold merger talks with Kawasaki Heavy Industries Ltd. to create Japan’s second-biggest heavy machinery maker.

Shares of Mitsui Engineering soared as much as 21 percent to 204 yen, the biggest intraday gain since Oct. 30, 2008, while Kawasaki Heavy rose 3.6 percent to 345 yen. The two companies aim to complete a merger in the financial year starting April 2015, the Nikkei newspaper reported without citing anyone.

Japanese manufacturers are under pressure to merge as they face sluggish local demand and intensifying competition with South Korean and Chinese rivals. Kawasaki Heavy and Mitsui Engineering would have combined annual sales of 1.9 trillion yen ($19 billion), behind only Mitsubishi Heavy Industries Ltd. among Japanese makers of heavy machinery makers, data compiled by Bloomberg show.

Kawasaki Heavy said earlier today that there’s no truth to the Nikkei report in a statement filed to the Tokyo Stock Exchange, while Mitsui Engineering said that it’s not the source of the article.

Mitsubishi Heavy and Hitachi Ltd. said last year they plan to combine energy-equipment businesses by January 2014, deepening ties between two Japan’s biggest industrial manufacturers. Nippon Steel & Sumitomo Metal Corp., the world’s second-biggest steelmaker, was formed by a domestic merger in October to become more competitive with rivals in China and South Korea.

Kawasaki Heavy, based in the western port city of Kobe, was founded as a shipbuilder in 1878. The company has become one of Japan’s top three makers of heavy machinery and produces everything from submarines for Japan’s self defense forces and high-speed trains to Ninja racing bikes.

Mitsui Engineering, founded in 1917 as the shipbuilding arm of Mitsui & Co., is most dependent of ship operations among heavy industry makers with sales accounting for half of the total.

– Shigeru Sato and Monami Yui, Copyright 2013 Bloomberg.

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This article contains reporting from Bloomberg, published under license.