Three-way Basic Agreement Signed for Integration of Marine Diesel Engine Businesses

By Curious

Mitsubishi Heavy Industries, Ltd. (MHI), its wholly owned subsidiary Mitsubishi Heavy Industries Marine Machinery & Engine Co., Ltd. (MHI-MME), and Kobe Diesel Co., Ltd. have today concluded a basic agreement to pursue integration of the marine diesel engine operations of MHI-MME and Kobe Diesel. Based on this, the three parties will seek to reach agreement on the terms of the integration by a target date of late December. This will be followed by the signing of the final agreement by early February, 2017. Once all necessary approvals have been acquired from the competent authorities, the three-parties will aim to complete the integration process by April 2017.

Three-way Basic Agreement Signed for Integration of Marine Diesel Engine Businesses

Background to business integration

MHI shipped its very first diesel engines-the independently developed proprietary "UE" engine series-in 1955. Since then, MHI has expanded its diesel engine business based on the strength of a fully integrated production system, spanning development and design to licensing, manufacture, marketing and after-sale servicing. The Company now enjoys an outstanding reputation among its customers for its engines, possessing Japan's only engine licenses of this type.

MHI launched MHI-MME in October 2013 to handle business related to marine machinery and engines. Since its launch, MHI-MME has specialized in product development, design, licensing and after-sale servicing. In the process it has built up a business model that provides a high level of added value.

In 1957, MHI concluded a technology tie-up agreement with Kobe Diesel making the firm an exclusive manufacturer of the UE engines. Kobe Diesel, based in Hyogo, has subsequently produced and sold more than 2,000 marine diesel engines.
The three parties have long enjoyed a mutually supportive relationship, with MHI and MHI-MME as licensers and Kobe Diesel as licensee. This fruitful relationship has driven the development of business operations at all three companies.

Objectives of business integration

Currently, the three parties are looking to vertically integrate their respective businesses as licensers (development, design, after-sale servicing) and licensee (manufacture, marketing, after sale-servicing) to form a dedicated manufacturer of marine diesel engines with a wholly integrated business administration process, covering the value chain from upstream to downstream. In this way integration of the three companies' marine diesel operations will establish a highly resilient and flexible business operating system which all three believe will be indispensable for the sustained growth of the UE engine business. This shared outlook led to today's signing of the basic agreement.

The forthcoming business integration will bring together MHI's long-standing advanced technical support, the high value-added business model of MHI-MME as a licenser, and the low-cost business model of Kobe Diesel. The three signatories, with the support of their respective customers, will now carry out detailed discussions. They will work towards achieving business integration, expanding relationships with all UE licensee companies, and becoming a global licenser and marine diesel engine provider capable of performing all aspects of development and design, including manufacture, marketing and servicing.

Source: Mitsubishi Heavy Industries