Tender offer for Hitachi Chemical: Presentation Material

Tender offer for Hitachi Chemical

December 18, 2019

Showa Denko K.K.

President & CEO

Kohei Morikawa

*See notes on page 19

History of Showa Denko (SDK)

1908-

Established the foundation of the business under the spirit of "tenacity and indomitability"

1945-

Deepened and further developed business, taking advantage of postwar reconstruction

1986-

Switched to energy-saving products

2001-

Pursued fusion of inorganic/organic and aluminum technologies

2012-

Shaping Ideas in pursuit of evolving KOSEIHA chemical company

1931 Started manufacture of ammonium sulfate using domestic technology (Showa Fertilizers K.K.)

1934 Industrialized domestically produced aluminum (Nihon Iodine K.K.)

1939 Established Showa Denko K.K. through the merger of Showa Fertilizers and Nihon Electrical Industries

1969 Produced the first aluminum can in Japan (Showa Aluminum Can Corporation)

1969 Oita Petrochemical Complex started commercial operation

1986 Started manufacture and sales of aluminum cylinders

1988 Expanded into the hard disk business

2001 Merged Showa Aluminum Corporation

2003 Expanded into the super bright LED market

2009 Started production of cooling devices for power semiconductor

2015 Established an integrated system for the manufacture of cans in Vietnam

2016 Established a joint venture in Korea for semiconductor- processing high-purity gas production

2017 Acquired the graphite electrode business of SGL Carbon

Today -

Showa Denko will mark a new page in history together with
Hitachi Chemical	2

Business Philosophy:

"Showa Denko Group's Mission"

Showa Denko Group's business philosophy (= Mission)

We will satisfy all stakeholders

that are

useful and safe and exceed our customers' expectations, thereby enhancing the value of the Group, giving satisfaction to our shareholders, and contributing to the sound growth of international society as a responsible corporate citizen.

	Shareholders'	Customers'	Social value
	value	value
	Enhance the value of the Group	Offer original value	Realize sustainable society
Partners in value creation	Leaders in value creation
Business
	Employees
connection
	Stage with		Stage with
	the sound present		promising future

The Group provides stages full of pride and dreams for employees' value creation activities

Showa Denko that has the sound present and promising future

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Vision "KOSEIHA Company"

"KOSEIHA Company" is "an aggregate of KOSEIHA Businesses that

can maintain high levels of profitability and stability."

"KOSEIHA Business" is a business in which SDK has a top market share in the market of appropriate scale (tens of billions of yen - hundreds of billions of yen)

Our global No.1 businesses

By 2025,	Market size (SDK's share)
make half	HD media	400 bil. yen
	(25%)
or more
gases for	(25%)
	High-purity	150 bil. yen
"KOSEIHA	electronics
Graphite	300 bil. yen ~
Businesses"	(UHP)
	electrodes	(Over 30%)

(Ref.) Features of KOSEIHA Businesses

Operating margin

10% or more

Operating income

Billions of yen or more

Stable profitability tolerant to environmental change

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SDK's strength

- Group of products with high global share -

Chemicals

High purity gases for electronics

(World's No. 1 share in C4F6,HBr, Cl2)

Gases used for etching, cleaning and as film-forming material in the semiconductor manufacturing process

Electronics

HD media

(World's No. 1 share specialized manufacturer) Used as data recording medium in hard disk drives

HPLC column (SHODEXTM)

(No. 1 share in Japan)

Equipment used for component analysis of substances such as pharmaceuticals

Inorganics

Graphite electrodes

(World's No. 1 share)

Electrodes used to melt iron scrap in an electric steel furnace in steel production

High purity titanium oxide

(No. 1 share in Japan)

Main material for making ceramics capacitors

Heat radiating filler

Contribute to energy conservation with highly heat radiating components

Lithium ion battery materials

- Aluminum laminated packaging material

SPALFTM(World's No. 2 share)

Used for LIB in smartphones and other devices

- Carbon nanofiber VGCFTM

(Proprietary product)

Electrode material additive that contributes to extending lifespan of lithium ion batteries

SiC epitaxial wafer for power devices

(World's No. 2 share)

Next-generation power semiconductor materials expected to help achieve smaller, lighter, more efficient and energy saving modules for power control units

Infrared light emitting LED

For sensing devices used in security, automobiles and FA

Aluminum

High purity aluminum foil

(World's No. 1 share)

Used for electrolytic capacitors mounted on IT devices, home appliances, and automobiles

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Overview of Hitachi Chemical

• Corporate name
• Establishment
• Head Office address
• Representative
• Listing
• Principle shareholder
• Lines of business
• Business fields

Hitachi Chemical Company, Ltd. October 10, 1962

1-9-2, Marunouchi, Chiyoda-ku, Tokyo

Representative Executive Officer, President and Chief Executive Officer Hisashi Maruyama

First section of Tokyo Stock Exchange (code: 4217)

Hitachi Ltd. (share: 51.2%)

Functional materials (electronics materials, printed wiring board materials, electronics components)

Advanced components and systems (mobility components, energy storage devices and systems, life science-related products)

Information and

Communications

Manufacturing and sale of materials for interface devices and systems that support an advanced information-oriented society, such as semiconductors materials, displays materials, wiring boards materials, and wiring boards

Mobility

Manufacturing and sale of materials and components for automobiles and transportation infrastructures, such as resin molded products, friction materials, powdered metallurgy products, and anode materials

Energy		Life Sciences
Manufacturing and sale of	Development, manufacturing,
products that contribute to new	and sale of diagnostic
energy and environmental	productsutilizing material
trends, such as lead-storage	technologies, and contract
batteries and capacitors for	manufacturing services of
industrial and automotive	regenerative medicine
applications	products

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Financial data

Hitachi Chemical

Business year ending on March 2019 (consolidated, IFRS)

Revenues	681.0 bil. yen
Adjusted operating	48.6 bil. yen
income
Net income attributable	28.7 bil. yen
to owners of the parent
Common stock	15.5 bil. yen
Total equity	429.6 bil. yen
Total assets	708.7 bil. yen
Number of employees	22,989

Showa Denko

Business year ending on December 2018 (consolidated, Japanese GAAP)

Net sales	992.1 bil. yen
Operating income	180.0 bil. yen
Net income attributable	111.5 bil. yen
to owners of the parent
Capital stock	140.6 bil. yen
Total shareholder's	465.3 bil. yen
equity
Total assets	1075.7 bil. yen
Number of employees	10,476

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Deal overview (1/2)

Overview

• HC Holdings K.K., a wholly owned subsidiary of SDK (hereafter "SPC" or the "tender offeror") has decided to purchase all shares of Hitachi Chemical Co., Ltd. through a tender offer
• The tender offeror has already entered into a contract with Hitachi Ltd. stipulating that Hitachi Ltd. will accept the tender offer for all the Hitachi Chemical shares it owns (ownership:51.2%)
• Hitachi Chemical has expressed consent to the tender offer and encourages Hitachi Chemical shareholders to accept the tender offer

Shares to be

purchased

•	Number of shares	208,219,903 shares
•Minimum number of shares	138,813,300 shares(2/3 of the voting shares)
•	Maximum number of shares	Not applicable

Tender offer

price/

Purchase price

•	Tender offer price	4,630 yen per share
•	Purchase price	Approx. 964 bil. yen(obtained by multiplying the tender offer price with the
		number of shares to be purchased)

Execution

• The tender offer will commence provided that certain conditions are fulfilled including completion of necessary procedures based on competition laws and other regulations of Japan and relevant countries
• The tender offeror aims to commence the tender offer by around February 2020

•	Period of tender offer	Planned to be 20 business days
•	Tender offer agent	Mizuho Securities (Otemachi Chiyoda-ku, Tokyo)

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Deal overview (2/2)

Fund

procurement

• SDK plans to make financial arrangements in a way to avoid a decline in capital efficiencies due to the dilution of shares and with consideration for maintaining financial soundness. Specifically speaking, SPC is planning to use the following funding approaches for the purpose of executing the tender offer
• • Loan from Mizuho Bank(non-recourse loans) : 400 bil. yen
  • Subscription of Class A preferred shares by Mizuho Bank and Development Bank of Japan : 275 bil. yen
  • Subscription of common shares by SDK: 295 bil. yen
• Regarding Class A preferred shares, SDK plans to receive equity content from a rating agency for a certain ratio of the procurement
• SDK does not plan to engage in fund raising activity involving the issue of common shares in relation to the tender offer

Financial policy	•	While the financial leverage (net D/E ratio) may increase temporarily following the acquisition, the mid-
	term target will be around 1.0x
	•	Will aim to maintain A rank zone in the JCR rating

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Significance of the merger

Efficient utilization of resources

Reduction of

(Greenhouse

Delivering healthy life

Survive as the top global manufacturer of specialty chemicals responding to changes in the environment

Achieve advanced functions and deliver solutions by combining a wide range of materials and technologies

presence of companies

Change and collapse of conventional tier structure

Global expansion material

of value delivered manufacturers due to

of MI*

material manufacturers ＊Materials Informatics

10

Significance as strategic partners

High affinity

SDK

Value: "Maximizing customer experience"

AspirationChanging our business model to offer

		solutions beyond the limits of a
		manufacturer
		KOSEIHA Company
		An aggregate of KOSEIHA Businesses
		that can maintain high levels of
Business		profitability and stability
	KOSEIHA Business
strategy		A business in which we have a global
		top market share in the market of
		appropriate scale (tens of billions of yen
		to hundreds of billions of yen)

Hitachi Chemical

As one of the top global manufacturers ofhigh-performancematerialsit creates innovative functionsby combining material technologies to deliver solutionsthat solve problems faced by customers

Niche and cluster strategy

Niche: high value-added products to aim for high profitability

Cluster: product and business groups aiming for the global top position in the market, which provides total solutions to customers and the market by grouping each product, business, technology and service

Strong complementary relation

Core

technologies

Surface and interface precise control technologiesin inorganic materials such as aluminum, ceramics, carbon and innovative material design capabilityin a variety of materials ranging from inorganic to organic (resin, etc.) materials

"Material design technology utilizing characteristics of raw materials, ability to evaluate functions, ability to design functions leading to process technology, including module segmentation" to link customer needs to solutions

World's leading solution company boasting an array
of global top share businesses	11

Business areas to pursue and notable growth drivers

Energy

IndustrialCapacitors battery systems

Electronics

Industrial Equipment

Rolled aluminum

Semiconductor

gas

Functional chemicals

Transportation

Basic chemicals

Resin materials

Petrochemicals

Graphite electrodes

Aluminum

cans

Life science & Healthcare

By combining the core technologies of SDK and Hitachi Chemical,
the two companies will together aim to grow in 7 business areas
including 5G, semiconductors, and electrification of automobiles	12

One-stop, advanced materials partner

Technology companieswill become more directly involved in each level of the value chain in the future. SDK and Hitachi Chemical will fuse to acquire the ability to propose a consistent and total solutioncovering from

thematerial level todesign and evaluation

Hardware			Application Service
	Formulation, dispersion,	Design, evaluation,
Materials	Assemble
addition, processing	consulting

Previously

	Component/material	Component
Material supplier	supplier	supplier
Structural design	Module design	ODM
Development of	OEM/Tier1
Analysis technology	Process design
materials	EMS
Analysis technology	Molding technology	Prototyping/
		testing

In the future

one-stop, advanced materials partner	GAFA
OEM/Tier1
Strengths of SDK	Strengths of Hitachi Chemical
Digital
Material design, material analysis	Material design leveraging material
5G
and adhesion of different materials	properties, functional evaluation,
for a wide range of materials	modulization of components and other
Next-generation
	process technologies	mobility

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Synergy in enhancing product competitiveness (Example: semiconductor packaging)

Combining SDK's material technologyand Hitachi Chemical's advantages in specification design,

evaluation and process proposal,it will become possible tocomprehensively optimize the

productby realizing consistent heat management designnecessary for fast-growing applications such as power semiconductors

Defining specifications

	Semicon
	ductor
	process
Inorganic	materials
Aluminum
	fillers

Optimal

specification

design

Organic		Heat
		resistant
		seals

Development

Material

SiC epitaxial wafer for

power devices

Granularity control

Crystallization control

Molecular structural

design

Organic synthesis

Molding material

Mass

Process technologyDesign, evaluation and production

consulting

Dispersion and	Semiconductor process
proposals by the
formulation for CMP
packaging solution
slurry
center
Closest packing
Surface processing
	Reliability
	evaluation	Heat
Insulation, conductivity
	management
control		evaluation

Formulation, kneading,

dispersion

Molded

Filmingarticle design

Semiconductor packaging solution

(logic semiconductors, power semiconductors)

Heat dissipation

Heat resistance

As a semiconductor packaging solution…

Realize optimal conditions for heat conduction

• Optimal specification design as a package
• Optimization of the heat conduction properties of the material and contact interface
• Making comprehensive proposals from product evaluation to implementation process as part of the sales approach

Expanding the scope of applicable products thanks to improved heat resistance of the material

• Materials for use in power semiconductors

SDK's material technologies	Hitachi Chemical's material
technologies

14

Synergy in next-generation technologies (Example: LiB materials)

Combining SDK's organic/inorganic material technologiesand Hitachi Chemical's graphite anode

material design technology, it will become possible to realize the high capacity, fast charging, long life, safety performance and cost competitivenessrequired of next-generation LiB cells

and thus accelerate the creation of next-generation LiB materials to contribute to next-generation mobility and low- carbon society

	Defining	Development				Mass
	specifications	Material	Process technology	Design, evaluation and	production
		consulting
	Si	Crystallization control	Heat treatment
	SiO
Inorganic		Granularity control	Surface treatment
CNT	Molecular structural	Conductivity control
VGCF	design
			Material
				Evaluation
			Evaluation	procurement
	Optimal			of safety,
	Crystallization control	Formulation	of charge-	Process
	specification	durability,
	discharge	improvement
	design			and
			properties
	Graphite			reliability	Sales
		Granularity control	Surface treatment			expansion
Organic		Molecular structural	Strong
Aqueous	design	adhesion
binder
	Organic synthesis

SDK's material technologies	Hitachi Chemical's material
technologies

Next-generation LiB anode material (next-generationLiB cell package)

High capacity	Fast charging
Long-life	Highly safe

Realize high performance by combining and fusing technology elements necessary for the creation of next-generation LiB anode materials

• Crystal Si metal for achievinghigh capacity
• CNT forimproving conductivity
• Granularity control and surface treatment of component materials forreducing internal resistance
• Strong junctionusing special aqueous binders to achieve high capacity and long life
• Specification optimizationby optimal specification design and mix formulation tailored to customer needs
• Accelerateddevelopment speed

Realize high cost competitiveness

• Enhanced procurementof graphite
• Accelerated cost reductionby sharing manufacture knowhow of artificial graphite

15

Cash creation

Accelerate growth and at the same time take earnest steps to improve cash creation abilitystarting from the first year of integration

Steadily realign and review business portfolio and continue regular reviews after integration

Target to achieve cost reduction synergy savings of more than 20 billion yen per yearin three years

Cost synergy

Ensure achievement of cost synergy

• Reduce procurement cost by joint purchase of needle coke and other raw materials and indirect materials
• Reduce indirect costs through consolidation and abolition of manufacturing processes and plants as well as head office functions

Realignment of business

portfolio

Accelerate realignment of the business portfolios of the two companies

• Steadily proceed with and accelerate realignment of business portfolio
• Continue to regularly review and realign business portfolio even after completion of the integration process

Cost structural reform

Take action to reform the cost structure of SDK and Hitachi Chemical from the first year of integration

• Beside cost synergy savings, plan and promote revenue improvement measures that can be carried out by either one of the two companies
• Comprehensively review direct and indirect costs, operating capital, etc

16

Fund procurement structure and financial policy

Procure funding in a way to avoid a decline in capital efficiencies due to the dilution of shares and with consideration for maintaining financial soundness by utilizing preferred shares and non-recourse loans

Fund procurement structure

Background

Mizuho Bank

Loan 295 bil. yen

SDK

Mizuho Bank

Development Bank

of Japan

• It will be possible tohold down direct investmentby SDK by utilizing preferred shares and non-recourse loans

Common shares

295 bil. yen

Class A

preferred shares 275 bil. yen

• Plan to receivecertain equity content from a rating agencyfor the preferred shares

Fund for

Hitachiacquisition Chemical's shareholders

SPC

Hitachi

Chemical

Non-recourse loan* Mizuho Bank400 bil. yen

•While net D/E ratio may increase temporarily following the acquisition, the mid term target will be around 1.0x

•Will aim to maintain A rank zonein the rating agency

•SDK does not plan to engage in fund raising activity involving the issue of common shares and thus equity dilution will not occur

* A non-recourse loan is a financing method based on the repayment capacity of the target company (Hitachi Chemical), and the risk of Showa Denko is limited to the investment 17amount at the time of acquisition

Operation after the acquisition

Two steering committees will be set up to discuss approaches for "selecting and concentrating" businesses and to facilitate business integration

SDKHitachi Chemical

Steering committee (1)

Steering committee (2)

Working group 1

The steering committees will be comprised of senior decision makers of the two companies (e.g. CEO, board members, etc.)

Two committees will be established according to purpose

1. Decision making related to business portfolio management, investment, budget and financing
2. Management and supervision of integration process

Administrative office and working groups organized under the two committees

Target:Substantially complete integration within a year after the closing of the acquisition

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Disclaimer

Any statements made in this communication that are not descriptions of historical facts, including those relating to the anticipated timing, closing conditions, completion and success of the proposed transaction, and the potential effects and benefits of the transaction on SDK and any other statements about future expectations, are forward- looking statements that are based on management's beliefs, certain assumptions and current expectations and evaluated as such. Forward-looking statements are based on, among other things, opinions, assumptions, estimates and analyses that are inherently subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to differ materially from those expressed or implied by the forward-looking statements. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward looking statements. These risks and uncertainties include, but are not limited to, general economic and market conditions and the satisfaction of the conditions to the consummation of the proposed transaction. Further, forward-looking statements speak only as of the date they are made, and SDK does not undertake any obligation to update or revise any forward- looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by laws.

The Tender Offer is not being made, directly or indirectly, in, or to, the United States, and is not being conducted through the United States Postal Service, or other means or instrumentality of interstate or international commerce, or through security exchange facilities in the United States. No tender to the Tender Offer will be accepted by said means, instrumentality, through said facilities, or from the United States.

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