1 Mar 2002 – Mitsubishi Electric and Toshiba said today they will integrate their power transmission and distribution business into a new, as yet unnamed, joint venture company with a sales target of 150bn yen ($1.1bn) in 2003.

Each of the two Japanese corporations will have a 50 per cent stake in the new company which will be incorporated in April and start trading on October 1 2002. They plan to transfer divisions responsible for sales, engineering, development and manufacturing functions into what will be Japan’s largest company dedicated to power transmission and distribution.

In a joint statement the company’s said, “The business volume of the combined operation will match those of the world’s top three companies in the business and will allow the new company to implement an operating structure that leads a global presence.”

Falling capital investment by Japan’s utilities and cut-throat competition from foreign rivals are forcing the former competitors, who have battled each other for dominance in the market, to co-operate.

Other companies that make transformers and power transmission equipment have already undertaken similar moves. Hitachi Ltd., Fuji Electric Co. and Meidensha Corp. merged their operations in July.

Although heavy electric equipment manufacturers have not been as badly hurt by the collapse of the information technology “bubble” as companies in other sectors, utilities have cut back on capital investment. Fewer orders mean more competition in a market that was already heating up due to the entry of foreign firms.

The new joint venture will have a capitalization of 40-50bn yen. In fiscal 2001, the two companies’ sales of transformers and power-distribution equipment topped 1.4 tn yen.

Toshiba and Mitsubishi Electric each control about 20 per cent of the Japanese market, while the joint venture encompassing Hitachi, Fuji Electric and Meidensha has more than 20 per cent, according to industry estimates.

The merger of Toshiba and Mitsubishi Electric’s transformer and power-transmission equipment manufacturing divisions would create a market leader with a 40 per cent share. In view of the market share, the new venture may require the approval of the Fair Trade Commission. The merged sales division would control more than half the market.

The two companies have been building close ties since they created a joint venture to develop and manufacture large industrial motors two years ago.

The new company will be headquartered in Tokyo and will have manufacturing facilities in Kawasaki, Itami, Ako, Fuchu and Kobe. An estimated 2700 employees will initially transfer to the new venture.