Pressure mounts on the Japanese conglomerate to shed its non-core divisions as share prices drop. The chief executive even admits a requirement of sweeping changes.
Seiji Izumisawa, the CEO of Mitsubishi Heavy Industries, has conceded that it is time for sweeping restructuring and overhaul, as it looks to separate its business to stave off long-term decline. He believes in a change based on strategy.
The conglomerate produces a wide range of products and businesses, from shipbuilding, coal power stations, automotive turbochargers, space rockets and fighter jets. Its shares have dropped 40% since Seiji Izumisawa became the CEO.
He is actively considering splitting the conglomerate and enacting reforms. This comes at a time when many fellow conglomerates are splitting up. It was done to avoid the dreadful conglomerate discount problem for shareholders.
For example, General Electric drew a plan to split into three public companies focusing on aviation, healthcare and energy. Similarly, Toshiba is to split into three focusing on electronic devices, infrastructure and semiconductors.
Nonetheless, as per reports from advisors working with the conglomerate, have said, that it is unlikely to partition itself into multiple listed entities. Because it is unclear if splitting up would create companies that would appeal to the investors.
For example, its lucrative business consists mostly of turbines for thermal power plants. It is expected to account for 60% of their profit in this fiscal year. What would happen, according to advisors, would be to sell off some non-core units.
It may follow the model of Hitachi, which successfully restructured itself. After they faced huge losses during the global financial crisis, its leaders streamlined the company’s operation, which led its stock prices to increase fivefold.
To raise its market value, Izumisawa is trying to steer the company away from its dependence on fossil fuels.
It has the largest global market share of carbon capture and storage. It also developed turbines for low-cost hydrogen power generation.
They hope that these new technologies will make the way smoother for transitioning to net-zero emissions. In November 2020, the company said that it aims to increase its global green energy revenues to ¥50bn in fiscal 2023 and ¥300bn by fiscal 2030.
According to Izumisawa, the transition can only occur gradually. It should be done through gradual reduction by using existing facilities. The weakness of such companies and stocks puts additional pressure on the Japanese economy.
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