CNN Hong Kong
TOKYO, Japan -- Mitsui Construction Co. said Tuesday it is in talks with Sumitomo Construction Co. that could lead to a merger.
But the two general contractors said nothing has been finalized yet. They also denied a report that Fujita Corp., another midsize contractor, is entering talks to join them.
"We are in talks with Sumitomo Construction on strengthening our ties, including a possible operational integration, but nothing has been decided yet at this point," Mitsui Construction stated in a release.
Sumitomo Construction issued a similar statement.
The possible merger sent the stocks of both companies racing. Mitsui ended Tuesday morning up 12.8 percent at 53 yen. Sumitomo leaped 14.6 percent to 55 yen.
Fujita also rose dramatically, up 17.7 percent to 20 yen.
The Yomiuri Shimbun reported three-way talks on a possible merger. They all share Sumitomo Mitsui Banking Corp. as their creditor.
The bank has several other contractor clients, including Kajima Corp. and Kumagai Gumi Co., and the bank's president has pushed for an industry reorganization.
Consolidation expected in debt-heavy business
Shares of construction companies in Japan were badly hurt by the failure in December of midsize general contractor Aoki Corp.
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Market watchers have been expecting consolidation. Many contractors are saddled with a large amount of debt.
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Both Mitsui Construction and Sumitomo Construction have reached prior deals with their bank to keep them going. But they denied earlier reports they were considering an alliance.
Tuesday's statements come after the Nihon Keizai Shimbun reported Mitsui Construction had reached a basic deal to integrate its operations with Sumitomo Construction as early as April 2003.
But they have yet to settle issues such as whether to merge fully or operate independently under a joint parent company, the Nikkei said, and a finalized deal is expected later this week.
A merger would create the seventh-largest construction company in Japan, with sales of around 700 billion yen.
Mitsui Construction specializes in high-rise buildings, while Sumitomo Construction focuses mainly on public-works projects such as roads and bridges.
Prime Minister Junichiro Koizumi has promised to cut back on public spending and has trimmed that portion of the budget.
Previous administrations often depended on hefty public-works spending to help stimulate the economy, but critics contend many of the projects were unnecessary.
