TOKYO -- Hitachi is set to acquire U.S. software developer GlobalLogic for $9.6 billion, Nikkei has learned. The deal is expected to be the largest acquisition by a Japanese electrical equipment company.
The planned acquisition comes as Hitachi is rapidly overhauling its group businesses to concentrate on the IT sector while shedding non-core operations.
Silicon Valley-based GlobalLogic, founded in 2000, develops platforms for companies pursuing digital business opportunities.
Hitachi plans to acquire all shares from existing shareholders in July and put the company under the umbrella of Hitachi Global Digital Holdings, which oversees its IT business in the U.S.
The new elicited a strong reaction from investors, however, with Hitachi's share price in Tokyo falling more than 7% on Wednesday.
The move comes as Hitachi concentrates its resources on IT-related businesses, especially its internet of things platform Lumada. The company is also working to develop a system that uses data analysis to improve management of production sites.
The shift has produced some results. Hitachi's IT-related sales are estimated to reach 1.97 trillion yen in the year ended March 2021, about a quarter of its consolidated sales, operating income from the segment is expected to hit 232 billion yen, or more than 50% of the total. The operating profit margin for its IT operations is over 10%, higher than its other businesses.
However, most of Hitachi's success in the IT field have been domestic. About half of the its group sales come from overseas, but that revenue is mainly from hardware such as elevators and railways. By contrast, 70% of its IT sector revenues come from Japan, largely from financial institutions and government agencies.
The GlobalLogic deal follows another big-ticket overseas acquisition by Hitachi. The company completed the purchase of Swiss ABB's power grid business in July 2020, at a cost of about 700 billion yen. That move was aimed at tapping the growing power grid market amid a boom in renewable energy, and also gaining access to ABB's global customer base and sales network.
GlobalLogic serves 400 U.S. companies, including telecommunication group Sprint, as well as international players such as automaker Volvo. Hitachi is hoping the acquisition will help it expand sales of its own systems to these companies. It has more than 20,000 employees in 14 countries, along with a development base in India.
As part of its restructuring, Hitachi has also been selling off non-core businesses. It sold Hitachi Chemical to Showa Denko, a Japanese materials producer, last year, and is in the process of selling Hitachi Metals, which was once considered one of Hitachi's three main units.
Currently, CPP Investments, which manages Canadian public pensions, and Partners Group, a Switzerland-based investment fund, each hold a 45% stake in the company. The rest is owned by the company's management.
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