Absorbing the shipbuilder Uraga Heavy Industries (1969)

Buying cheaply and using well are two different things

Calling this the rescue of a loss-making shipbuilder misses the centre of it. What Sumitomo Machinery Industries wanted was not shipbuilding but scale — a place alongside Mitsubishi Heavy Industries and IHI. President Nishimura Tsunesaburo described his own company as “something like a department store in the provinces,” too broadly stocked to narrow itself into a specialist; the road that remained was to become a full-line heavy-industry maker. The price was limited to taking on capital of $4.9M (¥2bn), and Uraga had already erased its accumulated deficit through a 50% capital reduction.

That it was bought cheaply is, however, a separate matter from whether it paid. The success at Oppama owed a great deal to accident: approval from the Ministry of Transport came a year late, so the yard’s order-taking coincided with the export-ship boom, and fully yen-denominated contracts spared it exchange losses. After the oil crisis the shipbuilding division moved to a 50%-capacity footing, and recurring profit in the year to March 1979 fell to $2.6M (¥600m). Whether a purchase is shrewd is not settled by its price; it is settled by which demand the acquired plant can be pointed at.