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Sumitomo, after expansion rumblings, will buy Demag Plastics Group

January 18, 2008

3 Min Read
Sumitomo, after expansion rumblings, will buy Demag Plastics Group

Although the official word from the companies only confirms that they are indeed talking, it seems certain that the next days or weeks will see Japanese injection molding machine manufacturer Sumitomo Heavy Industries (SHI; Tokyo) complete its acquisition of Demag Plastics Group (DPG; Schwaig, Germany). The firms notified Germany’s antitrust division on January 2 (filing number B5-9/08; link here) that Sumitomo was in talks to acquire DPG; this filing typically is a made at a step very late in negotiations and is a near-certain sign that a deal is near at hand.

Without naming sources, some other news outlets say the purchase already is a fait accompli, with financial media outlet Bloomberg reporting on January 14 that SHI would buy DPG from investment fund Madison Capital. Bloomberg speculated the price would exceed 10 billion yen ($92 million).

DPG, which went through a series of structural and personnel changes in 2007, including ceasing machinery production in Strongsville, OH, has two machine-manufacturing sites in Germany, as well as production in Chennai, India, and a recently expanded site in Ningbo, China. In 2007, the company said its focus going forward would be on three main machine lines—Systec (hydraulic), IntElect (all-electric), and El-Exis (hybrid).

Sumitomo’s primary offering is an all-electric range with clamp forces from 80 to 450 tons. It also supplies molding lines for vertical injection, optical discs and PET preforms, as well as a hybrid machine and an injection blowmolding line. According to the company’s web site, it produces injection molding machines at its Chiba Works, located in Chiba city, with an additional site opened in 1998 in Norcross, near Atlanta, GA. That site manufacturers the SH Series machines for North America.

In terms of recent financial performance, at the K 2007 trade show DPG CEO Klaus Erkes said that since 2005, sales have essentially remained the same, but EBITDA was up 32%. Yoshinobu Nakamura, who became Sumitomo Heavy Industries president in early 2007, said in the company’s most recent earnings statement for fiscal year 2007 (ending Sept. 20, 2007), that the Japanese industrial conglomerate had orders of 730 billion yen, sales of 660 billion yen, and operational income of 77 billion yen. Over that time, foreign sales exceeded 50% of the total.

Nakamura also detailed the company’s Leap to Excellence ’07 initiative, which among other strategies, included an expansion of its overseas business. In a Q&A within the report, Nakamura commented on the cutthroat nature of global M&A, in some ways foreshadowing the company’s pursuit of Demag. “The accelerating globalization of the economic activities has been bringing more severe competition and risk of being taken over...Strong players surviving in the contesting market will become stronger while weak players will be gobbled up by the strong or forced to leave the market…Not only high profitability and strong performance but also expansion of the size of business is necessary.”

In the same report, Nakamura laid out his next medium-term management plan, dubbed Global 21, which calls for SHI to reach the 1 trillion yen in sales by 2015, with the overseas market making up the majority of that figure. The interim goal in 2010 is sales of 850 billion yen. Within plastics, Demag brings a large, globally installed base of molding machines and adds a manufacturing and sales presence in Europe, China, and India for Sumitomo.

Injection molding machines, which fall under a broader group for SHI that includes items as diverse as power transmission equipment and machine tools, achieved an increase in orders of 5% to 121.4 billion yen in the last fiscal year. Sales, meanwhile, rose 4% to 110.2 billion yen. Income from the unit was up 12% to 12.7 billion yen. Incorporated in 1924, Sumitomo employs more than 2800, with the main office in Tokyo and multiple production sites throughout Japan.

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