Hitachi Ltd <6501.T> plans to absorb five listed units, two sources close to the matter said on Monday, as the loss-making conglomerate tries to pool its sprawling resources to turn a profit.
The news and hope that this would prelude further consolidation lifted shares of the Japanese maker of industrial electronics along with its subsidiaries.
Hitachi will launch tender offers as early as next month to buy the shares it doesn't already own in Hitachi Maxell <6810.T>, Hitachi Plant Technologies Ltd <1970.T>, Hitachi Information Systems Ltd <9741.T>, Hitachi Software Engineering Co <9694.T> and Hitachi Systems & Services Ltd <3735.T>, the sources said.
(Hitachi) can't do everything and expect to do everything well, said one source, who declined to be named because the move has not been announced. (It's) spread too thin and needs to consolidate more.
The move could cost Hitachi up to 300 billion yen ($3.2 billion), including a premium on the units' share price, the Nikkei business daily said.
Hitachi, a sprawling conglomerate with more than 900 group firms and 16 listed subsidiaries, is looking to revamp the management of its assets after losing about $8 billion in the past business year, a record for a Japanese manufacturer.
The company, which has forecast a net loss of $2.9 billion this year, could rake in more of its units' profits for its bottom line by taking full control of some companies.
It's a first step, Deutsche Bank analyst Takeo Miyamoto said. But this will not raise Hitachi's net profit that much, or change the fact that it still needs to raise funds.
Hitachi will announce the move this week, the Nikkei said.
Large losses have torn into Hitachi's capital base, halving its shareholders' equity ratio in one year, and it is likely to pay for the tender offer with a combination of cash and share swaps, analysts said.
Hitachi's shareholders' equity ratio stands at 11.2 percent -- roughly a quarter that of peers Sharp Corp <6753.T> and Panasonic Corp <6752.T> and half that of NEC Corp <6701.T>, prompting it to look into applying for state funds.
Shares of Hitachi rose 3.4 percent to 304 yen, outperforming a 1.5 percent rise in the benchmark Nikkei average <.N225>. Shares in Hitachi Maxell rose 16.5 percent, and other reported targets gained 15 percent to 18 percent.
Hitachi Maxell makes magnetic tapes and lithium-ion batteries, and runs a battery joint venture with Shin-Kobe Electric Machinery Co Ltd <6934.T>.
Hitachi Plant Technologies designs factory and air conditioning systems, flat panel making machines and nuclear power plants. Hitachi Information Systems is a data-processing company, Hitachi Software Engineering is a software developer, and Hitachi Systems & Services is a computer systems integrator.
Hitachi currently has stakes ranging from 51.2 percent to 68.1 percent in the five firms.
But the list of companies to be absorbed does not include some of Hitachi's top earners such as Hitachi Chemical <4217.T> and Hitachi Metals Ltd <5486.T>.
If Hitachi does make these units wholly owned, it could next raise its stake in other group firms as well, both good and bad, said Yuichi Ishida, an analyst at Mizuho Investors Securities. But cash is getting tight. Equity financing must be a tempting prospect.
Hitachi has already raised its stake in Hitachi Kokusai <6756.T> and Hitachi Koki Co <6581.T>.
Hitachi's new chief executive Takashi Kawamura, formerly the chairman of Hitachi Maxell and Hitachi Plant Technologies, has pledged to focus its resources on its IT networks and power systems businesses.
A Hitachi spokesman said nothing has been decided or announced by the company. He declined to comment on whether it was considering making the five firms wholly owned units.
(Additional reporting by Reiji Murai and Nathan Layne; Editing by Hugh Lawson)