Hitachi, Ltd. (TSE:6501) has narrowed down the candidates for the sale of its listed subsidiary Hitachi Metals, Ltd. (TSE:5486) to two consortiums of Japanese and U.S. investment funds, Jiji Press learned. Hitachi is expected to pick the buyer as early as April 2021, according to sources. The total value of the deal could exceed JPY 700 billion, which would make it one of the largest mergers and acquisitions involving a Japanese company in 2021.

The sale is part of a reorganization of the Hitachi group in line with the rapid digitalization of society. As a result of the second round of bidding, which closed in the middle of this week, candidates were narrowed down to two groups, the sources said. One of them is the consortium of public-private fund Japan Investment Corporation or JIC, and KKR & Co.

Inc. (NYSE:KKR) of the United States. The other one is the consortium of Bain Capital, LP of the United States and Japan Industrial Partners, Inc. Both KKR and Bain are major global investment funds. Hitachi will carefully examine the proposals from the two camps and give preferential negotiating rights to one of them before it announces its financial results for fiscal 2020 in April or May.

Hitachi Metals deals with advanced materials essential for manufacturing in the fields of information and telecommunications networks as well as aviation. Wary of an outflow of technology overseas, the Japanese government sought the involvement of JIC in the acquisition. For this reason, the JIC-KKR alliance is seen by some as having an advantage.

Hitachi Metals shares have been traded at high prices partly due to M&A expectations, with the company's stock market capitalization to standing at about JPY 783.1 billion as of March 25, 2021. There is a risk that the market price will be higher than the actual corporate value, a financial source said. In order to focus on the digital field, Hitachi is planning to reorganize businesses with little synergy, including Hitachi Metals, in which it has a stake of some 53%.