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ANALYSIS: Mitsubishi in no rush for Vestas

Japanese industrial group Mitsubishi Heavy (MHI) is still in negotiations over a stake in Vestas – but is in no hurry to push forward the talks, believe analysts in Tokyo.

Buying into Vestas offers clear opportunities for MHI, in particular, by giving the Japanese group access to an established offshore wind turbine production and marketing platform.

Yet with other business segments dwarfing its wind business, and a huge merger with Hitachi just signed, the company is unlikely to give such a deal the attention it needs for some time.

“They are still in negotiations but it’s not a short-term negotiation,” says Ryo Tazaki at Nomura Securities.

Mitsubishi sees an investment in Vestas as a channel to its much-desired North Sea market. The company is developing a 7MW offshore wind turbine but has no prior experience of the offshore market.

If it sees the potential for growing orders from Europe, it will need local production and Vestas could give it access to local factories , says Tazaki.

But MHI does not need to move rapidly. Talks could easily drag on for the rest of the year as the Japanese group watches a slow-moving market in Europe.

Up to now, the wind turbine business has been something of a headache for MHI. Orders for the firm’s wind business, primarily in the US, has slowed to a trickle amid dwindling demand and a bruising legal battle over patents with GE.

Wind turbines will make up 1.5% of MHI’s 40bn yen ($432m) order inflows this year, estimates an analyst.

In contrast, thermal power equipment demand has grown as a result of the post-Fukushima shift in Japan’s energy supply.

In November, MHI agreed to combine its gas turbine and other thermal equipment businesses with those of Hitachi, forming a new company with annual sales estimated at 1.5 trillion yen.

The deal, to complete in January 2014, has dwarfed the much smaller proposed investment in Vestas – estimated at around €200m – and setting up the new company with Hitachi is expected to take priority.

“The deal between Hitachi and MHI was enormous but this [the Vestas stake] is just a capital investment. It’s not much of a topic for us,” says Yukihiro Kumagai, analyst at Jefferies in Tokyo.

When MHI gets back to focusing on talks with Vestas, it will be looking carefully at market developments.

MHI shuffled its management earlier this week, appointing Shunichi Miyanaga, currently senior executive vice president, to the post of president from 1 April. Miyanaga has worked closely with current president Hideaki Omiya on restructuring loss-making operations at the firm and will have his eye firmly on the bottom line.

“They will want to make sure a stake in Vestas will really give MHI a synergy effect to make profits for the company,” says Kumagai.

In the meantime, the Japanese group’s negotiating power is increasing. The weak yen boosted third quarter earnings this week, giving the company a competitive advantage with which to bargain.

Ironically, Mitsubishi’s results came out the same day as Vestas reported losses six times the level of 2011 and said it was cutting its shipment forecast for 2013.

Mitsubishi has the cash Vestas needs. But the Danish firm may need to work harder to persuade the Japanese giant to part with it anytime soon.

 

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