December 03, 2002
Sumitomo Heavy Industries, Ltd. (hereinafter referred to as our company) and Shin Nippon Machinery Co., Ltd. (hereinafter referred to as SNM) decided at their respective board meetings held on December 3, 2002 to make SNM into a wholly owned subsidiary of our company as of April 1, 2003 by exchanging shares and concluded a share-exchange contract.
1. Purport of the exchange of shares
SNM is a consolidated subsidiary of our company (ratio of our shares: 49.9%, or 50.1% when indirectly possessed shares are included). SNM manufactures and sells power generating units for refuse incinerator plants, steam turbines for combined-cycle power generating units, steam turbines for cogeneration, and pumps for water supply and other environmental equipment, as well as industrial pumps for semiconductors, chemicals, and medicines. SNM is listed on the second section of the Tokyo Stock Exchange. After making the mediumterm management plan in 2001, the business has improved as a result of unification of production sites and thoroughgoing reduction in costs. While the market competition is heating up, the development of larger turbines and special pumps is indispensable for further growth. Our company has worked out a strategy of effectively using the value chain among businesses, changing our business structure into a customer value creation type. Under such circumstances, our company positioned SNM as an important enterprise that we should grow and consolidate because it has possible value chains (synergistic effects) linked to the businesses of many member companies of our group. The theme for the growth of SNM is the development of larger turbines and special pumps that will meet the needs of the market. Our company decided to quickly establish a system, which will permit effective use of the technologies and human resources of our group for the growth of SNM, and make SNM into a wholly owned subsidiary. Our group has a division engaged in the manufacture of turbine blades, large cast steel products, speed reducers, and large machined products. While giving top priority to the value chain within the group, we will endeavor to have the current project lead to an increase in the profit of the group as a whole.
2. Conditions for exchange of shares
(1) Schedule of exchange of shares
December 3, 2002: Board meeting at both companies to approve the share-exchange contract
December 3, 2002: Conclusion of the share-exchange contract by both companies
February 13, 2003: Shareholders meeting for approval of the share-exchangecontract at SNM (planned)
April 1, 2003: Exchange of shares (planned)
(2) Simplified exchange of shares
Our company is not planning to ask for a resolution at the shareholders meeting concerning the approval of the share-exchange contract based on the stipulations of the Commercial Law, Article 358 (Simplified Exchange of Shares).
(3) Exchange ratio of shares
Our company asked Daiwa Securities SMBC to calculate the exchange ratio of shares, while SNM asked Global anagementDirections Limited (hereinafterreferred to as GMD) to calculate the exchangeratio of shares. Both companies agreed as follows after consultation with each other based on the respective calculation results.
1) Our company will allot and issue 1.60 shares of our company for 1 share of SNM. However, our company will not allot ourshares to SNM s shares(8,691,634 shares) that we already have.
2) Calculation method by third-party organization and grounds for calculation Daiwa Securities SMBC analyzed the shares of our company and those of SNM using the market share price method, analogous company comparison method, and discounted cash flow method, and calculated the exchange ratio of shares on the basis of the respective results.GMD analyzed the shares of our company and those of SNM using the market share price method, discounted cash flow method, and modified net asset method, and calculated the exchange ratio of shares on the basis of the respective results.
3) Number of new shares of our company to be issued for exchanges of shares Common shares: 13,928,905 shares
4) Initial date of reckoning profit sharing The initial date of reckoning profit sharing concerning new shares issued for exchange of shares is April 1, 2003.
(4) Subsidy for exchange of shares There is no payment of subsidy for exchange of shares.
3. Condition after exchange of shares
(1) Trade names, lines of business, and addresses of head offices of the companies concerned There is no change due to the exchange of shares.
(2) Capital and capital reserve of our company
1) Capital: The capital will not be increased for the exchange of shares.
2) Capital reserve: The amount of capital reserve to be increased is to be calculated by multiplying the amount of the net assets of SNM on the day of the exchange of shares by the ratio of the number of shares to be transferred to our company for the exchange of shares to the total number of issued shares of SNM.
(3) Influence on the performance of our company Since SNM is already a consolidated subsidiary of our company and the date of the exchange of shares belongs to the term ending in March 2004,we do not expect any influence on the performance during the current term on both separate and consolidated accounting bases.Both companies will make further efforts to make our business more efficient and concentrate the power of our group to improve our performance.