Kawasaki Steel Corporation ("KSC") and NKK Corporation ("NKK") jointly announced today that the two firms have entered into a Memorandum of Understanding expressing their intention to combine their entire operations, following the approval of this agreement by the board of directors of both companies. The two firms are committed to initiating the consolidation process as outlined.
1. Background of the Business Consolidation
In April 2000, KSC and NKK entered into an Agreement of Mutual Cooperation for the Operations (transportation, maintenance and procurement) of four steel works in Japan. Since then, KSC and NKK have been endeavoring to expand the scope of this mutual cooperation through various joint-programs for cost reduction. During these efforts, drastic changes have been taking place, such as the global consolidation of major industries and the expansion of globally-integrated procurement policies. In order to provide customized high quality products and related services worldwide and expand business under the circumstances above, KSC and NKK agreed that consolidation is the best strategy.
2. Objectives of the Business Consolidation
With steel and engineering as core business, the consolidated company will be committed to establishing a strong earnings base and enhancing shareholders' value.
KSC and NKK will realize top-tier competitiveness in the world through strong customer base, advanced technology and state-of-the-art steel works and manufacturing plants with the highest efficiency, and create an ever-challenging and innovative corporate culture. By doing so, KSC and NKK will pursue the following:
3. Outline of the Consolidation
|(1)||Strengthening further the capabilities to respond to global customer requirements in the fastest manner|
|(2)||Enhancing credibility from shareholders and capital markets in the world|
|(3)||Providing employees with more challenges and opportunities|
|(4)||Contributing to local communities and environment conservation|
KSC and NKK will consolidate, on the basis of equal partnership and in mutual trust, the entire business, including subsidiaries and affiliates, subject to regulatory and shareholders' approval.
4. Synergy Effects of the Business Consolidation
|(1)||Basic Structure and Schedule|
By October 2002, the two firms will plan to jointly establish a Holding Company ("Holding") and become respectively a 100% subsidiary of the Holding by the "stock-for-stock exchange" method. The Holding goes public on the Tokyo Stock Exchange, and consequently KSC and NKK go private through this exchange.
[2nd Step = Final Stage]
By April 2003, full integration is expected to be completed under the Holding to form new entities on the basis of business segment.
|(2)||Name, place of head office, representative board members of the Holding, etc.|
These basic issues will be determined later.
|(3)||Share Exchange Ratio|
"Stock-for-stock" exchange ratio to form the Holding will be determined by both companies, taking into consideration "fairness opinions" from independent professional institutions.
KSC and NKK will continue their efforts to accomplish the various targets of each company's mid-term management plan, and will do their best to realize in the fastest manner the expected synergy effects from business consolidation, not only in the steel business but also in the engineering business and so forth.
(1) Building solid business base by strengthening further the capability to respond to global customer requirements
(2) Becoming a "global leader" of cost-competitiveness
- Combining R&D resources to develop more variety of product lines and to enhance the speed of product development
- Optimizing the production allocation, and reducing a lead-time by developing revolutionary Supply Chain Management systems
- Providing the best services to customers by expanding and integrating worldwide networks
(3) Re-organizing business
- Reducing production and transportation costs by optimized production
- Reducing procurement costs through volume discount and unified
- Saving the capital expenditure through integrating capex programs and
optimized utilization of common facilities
- Reducing the overhead and related expenses
(4) Improving financial conditions
- Restructuring all the business lines, including subsidiaries and affiliates,
for more efficient operations
5. Preparation for the well-organized Business Consolidation
- Reducing debts by improving cash flow
- Slimming down assets such as fixed assets and working capital
- Centralized management of fund-raising and short-term investment for more efficient cash management and lower financing costs in all subsidiaries and affiliates
The Consolidation Preparation Committee (CPC) will be established and co-chaired by the CEOs of KSC and NKK to drive forward the consolidation. CPC will have various subcommittees to carry out the smooth integration of entire business.
KSC and NKK are committed to working together, even prior to the completion of the business consolidation, through any practicable joint programs for customer satisfaction.