JFE Holdings and IHI announced on Monday both companies reached a basic agreement to merge Universal Shipbuilding Corporation and IHI Marine United (IHIMU), shipbuilding companies of both groups. Universal Shipbuilding will integrate IHIMU in October 2012 and the new company will become Japanese top or second largest shipbuilder. Cost reduction effect is expected at approximately 10 billion yen three years later by productive optimization as well as scale advantage in material procurement and other operations. They enhance competitive power by the merger against South Korean and Chinese shipbuilders.The new company’s name and capital fund have not been determined yet. Details will be designed out until late August. JFE Holdings and IHI will hold each 45.93% of the new company’s shares. Hitachi Zosen Corporation will hold 8.15% of the shares. The new integrated company will succeed offices, shipbuilding docks and employees from Universal Shipbuilding and IHIMU without docks’ shutdown. JFE Holdings and IHI started talks for the business integration in April 2008 but the negotiation took long time along drastic market change after Lehman Shock. They judged the merger is necessary to survive tough competitions with overseas shipbuilders even under current trend of extremely strong yen. Universal Shipbuilding has five docks and IHIMU has three docks. The new company seeks most effective production system and raises designing capacity through utilizing these eight docks. Japanese steel industry source commented the integration might not have large impact on Japanese steel makes while he showed a concern on the increase of steel plate import if the new company shows scale-advantaged buying power. Universal Shipbuilding and IHIMU purchase steel plate mainly from JFE Steel but, in recent years, South Korean steel makers have raised its presences to Japanese shipbuilders. New ship completions by Universal Shipbuilding and IHIMU totaled 3.8 million gross tons in fiscal 2010 ended in March 2011. Steel consumption is estimated at 1.1-1.4 million tonnes per year mainly for steel plate.
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