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Heisei Polymer to Become SDK's Fully Owned Subsidiary

SHOWA DENKO K.K.
HEISEI POLYMER CO., LTD.
March 22, 2004

Showa Denko K.K. (SDK) and Heisei Polymer Co., Ltd. (Heisei) decided at their respective board meetings today that Heisei would become SDK’s fully owned subsidiary through a share exchange arrangement.

Under its consolidated business plan the “Sprout Project” for the 2003-2005 period, SDK classifies its petrochemicals business in the category of “businesses that need restructuring” and is seeking to optimize its business environment.

Heisei, a key player in SDK’s plastic products operations, has focused its resources on cloth film business since it transferred its packaging materials and laminate operations in 2001 to another SDK subsidiary. In 2003, Heisei completed a new facility for the production of films with high cleanliness to meet strict quality requirements for pharmaceutical/food applications. The company has continuously been reducing its costs.

However, in view of the intensifying competition with imports, SDK and Heisei agreed that Heisei’s business should be reinforced with SDK’s full support, making Heisei a fully owned subsidiary of SDK.

To strengthen the Group’s earning power and to establish internationally competitive cost structure, SDK will further study the possibility of integrating Heisei’s business with that of Showa Denko Plastic Products Co., Ltd., another key player within the Group.

The following are details of the contemplated share exchange arrangement:

1. Schedule

Heisei will hold a regular meeting of its shareholders on June 29, 2004 for approval of the share exchange agreement. On July 28, 2004, the listing of Heisei shares will be terminated. On August 3, 2004, the share exchange will take effect.

Note: In accordance with Clause 1, Article 358, of the Commercial Code (simplified procedure for share exchange), SDK will not refer the issue to its shareholders’ meeting.

2. Exchange ratio

For each share of Heisei’s common stock, 0.41 shares of SDK’s common stock will be allocated. As for the 8,597,208 shares of Heisei’s common stock owned by SDK, there will be no allocation.

The above ratio was decided based on calculations by third parties and after consultation between SDK and Heisei. SDK appointed Mizuho Securities Co., Ltd. (Mizuho), and Heisei nominated Pricewaterhouse Coopers Financial Advisory Service Co., Ltd. (PwC FAS) for the calculation.

Mizuho’s calculation was based on the market price method, similar-firms comparison method and a discounted cash flow (DCF) analysis. Meanwhile, PwC FAS’s calculation was conducted using the market price method, the DCF analysis and net asset (current price) method.

As a result of this share exchange, SDK will issue 4,732,196 new shares of its common stock for allocation. There will be no payment of cash pertaining to this share exchange.

3. Profile of the two companies involved in the share exchange

Company name Showa Denko K.K. Heisei Polymer Co., Ltd.
Scope of business Petrochemicals; Chemicals; Inorganic Materials; Electronics; Aluminum, etc. Cloth film; Resin plates; Real estate
Establishment June 1, 1939 July 7, 1943
Head office 13-9, Shiba Daimon 1-chome, Minato-ku, Tokyo 9-10, Nihonbashi Horidome-cho 1-chome, Chuo-ku, Tokyo
President Mitsuo Ohashi Minoru Yamanaka
Capital H,451 million (as of Dec. 31, '03) ¥2,205 million (as of Sept. 30, '03)
No. of shares issued 1,138,100,738 (as of Dec. 31, '03) 20,139,150 (as of Sept. 30, '03)
Stockholders' equity ¥177,432 million (as of Dec. 31, '03) ¥3,933 million (as of Sept. 30, '03)
Total assets ¥758,847 million (as of Dec. 31, '03) ¥6,191 million (as of Sept. 30, '03)
Accounting term Ending December 31 Ending March 31
No. of employees 4,248 (as of Dec. 31, '03) 155 (as of Sept. 30, '03)
Major shareholders Japan Trustee Service Bank: 5.32% Showa Denko: 42.69%
Fukoku Mutual Life Insurance: 4.82% Fukoku: 5.47%
Sompo Japan Insurance: 4.80% Heisei Polymer Employees: 3.52%
Daiichi Mutual Life Insurance: 4.20% Mizuho Corporate Bank: 2.09%
The Master Trust Bank of Japan: 3.97%
(as of Dec. 31, '03)
Mizuho Trust Bank (for Tomoe Engineering's retirement benefit trust): 1.98%
(as of Sept. 30, '03)
Main bank Mizuho Corporate Bank
Central Cooperative Bank for Agriculture and Forestry
Mizuho Trust Bank
Mizuho Corporate Bank
UFJ Bank
Mitsubishi Trust Bank
Relationship between the two Showa Denko now owns 42.68% of Heisei Polymer's outstanding shares.
One each director and employee of Showa Denko concurrently serve as auditors of Heisei Polymer.
Heisei Polymer sells its cloth film products to Showa Denko.
Financial results for the past three years (Unit: millions of yen, except for per-share values)
  Showa Denko K.K. Heisei Polymer Co., Ltd.
Fiscal year 2001 2002 2003 2001 2002 2003
Net sales 434,510 437,633 461,994 12,273 7,774 4,868
Operating income 5,484 18,702 22,911 - 365 - 426 12
Recurring profit 109 10,120 12,967 - 386 - 479 1
Net income - 47,513 17,777 5,020 - 208 - 957 82
Net income per share - 42.68 15.62 4.41 - 10.31 - 47.55 4.08
Dividend per share per year -- -- 2.0 -- -- --
Shareholders' equity per share 134.15 146.88 155.92 239.89 192.18 196.31

4. After the share exchange

There will be no immediate change in Heisei's company name, scope of business, head office location and president.
SDK's capital will see no change. However, SDK's capital surplus will increase by the amount calculated by the following formula:

[Net asset existing at Heisei on the day of share exchange] x Number of shares to be transferred to SDK as a result of share exchange) / (Number of Heisei's outstanding shares

Since Heisei is already a consolidated subsidiary of SDK, SDK's consolidated performance for fiscal 2004 will not be influenced materially by Heisei becoming SDK's fully owned subsidiary.