News Release

Reorganization of chemical business

Oct 20, 2005

Osaka, October 20, 2005 – Air Water Inc. (AWI) has decided, with a view to the future, to reorganize and consolidate its chemical business for the purpose of maintaining and increasing growth in the Air Water Group and, through this, of maximizing the corporate value of the group. The reorganization aims to strengthen and grow the chemical business itself and to boost the competitiveness of the company’s industrial gas business where, through collaboration with organic chemistry technologies, there is much promise of expansion in front end fields of the industrial and medical business sectors.

The AWI chemical business is an independent operational unit comprising three companies – Tateho Chemical Industries Co., Ltd. (Tateho Chemical), Air Water Chemical Inc. (Air Water Chemical) and Air Water Bellpearl Inc. (Air Water Bellpearl) – and operates in line with its own strategies. With a view to combining the management resources of these three companies and realizing greater efficiencies through their integrated management, the reorganization announced today will make Tateho Chemical a wholly-owned subsidiary of AWI and also see the merger of Air Water Chemical and Air Water Bellpearl into the main AWI structure.

AWI is currently pressing ahead with its Target 3600 mid-term business plan (April 2004 through March 2007) in its bid to become a major player in the industrial gas business. Looking ahead to the next mid-term plan (due to start April 2007) that will be implemented after achievement of the current plan, the reorganization of the chemical business announced today is intended to further clarify the position of the industrial, chemical and medical businesses as AWI’s core units and to promote further technology-led strengthening of its operations.

I. Reorganization: background

The history of AWI’s chemical business began with a capital participation in Tateho Chemical in 1988 Since then AWI has expanded its chemical business with the acquisition of Air Water Chemical in September 2002, the establishment in October 2004 of C-Chem Co., Ltd. (Nippon Steel Chemical holding a 65% and Air Water Chemical a 35% equity stake respectively) as Japan’s largest coal tar distiller, and the acquisition of Air Water Bellpearl in March 2005.
Tateho Chemical specializes in the manufacture of magnesium products and is distinguished by its crystal control technology. Air Water Chemical’s fine chemicals business is built around a core of coal-based basic chemicals, pharmaceutical and agro-chemical intermediates and electronic materials and is distinguished by its organic compound synthesizing technology built around a kernel of oxidation technology. Air Water Bellpearl manufactures products from functional high-polymer granular phenol resin (Bellpearl) and new carbon materials created using firing and carbonizing technology. Each company conducts its operations around an axis of highly competitive and proprietary technologies.
The current Target 3600 mid-term business plan calls for the chemical business to be developed into a core division second only to the industrial business. In fiscal 2004 the chemical business achieved substantial growth to generate 60 billion yen in net sales.

II. Reorganization: process and significance

In order to establish a more tightly integrated management structure, to promote the combination and sharing of management resources and to conduct its business with greater operational speed and efficiencies, AWI has embarked on a reorganization that will consolidate three of its operational units as per the following schedule. This reorganization is expected to see the chemical business grow into a 80 billion yen business in four years time.*

  • February 1, 2006 : Tateho Chemical to become a wholly-owned subsidiary through a stock swap.
  • April 1, 2006 : Air Water Chemical to be merged into the main AWI structure.
  • April 1, 2006 : Air Water Bellpearl to be merged into the main AWI structure.

* For details on the stock swap with Tateho Chemical please see the “Tateho Chemical Industries to become wholly-owned AWI subsidiary through stock swap” news release published today by AWI and Tateho Chemical. Details on the Air Water Chemical and Air Water Bellpearl mergers will be announced when they are finalized.

III. Reorganization: objectives and benefits

  • Boosting and expansion of chemical business through speedier, more efficient integrated management

The reorganization will pave the way to future growth for the chemical business by combining and sharing chemical business management resources and by creating an integrated management structure that will function faster and more efficiently.
The corporate concept calls for a hybrid expansion of the fine chemicals business to embrace the whole organic-inorganic spectrum. The consolidated chemical business will extend its reach to high value-added businesses by exploiting its unique technologies in targeting electronics, automobiles, medicines and other promising growth sectors.

  • Beefing up R&D capabilities through centralization and consolidation of technological resources

In a move designed to capitalize on one of the major benefits of the reorganization announced today, AWI is planning to centralize and consolidate R&D functions and in doing so to expand its R&D organization.
The centralization of the technological resources and the consolidation of competitive core technologies held by the three companies will allow the AWI Group to strengthen and expand its overall R&D capabilities. On this cornerstone, AWI will set its new R&D organization the targets of developing totally new technological possibilities that combine inorganic and organic chemistries and of creating new products centering on the functional materials sector.

  • Boosting group capabilities by strengthening intra-divisional teamwork

By means of technology transfers and through greater sharing of customer and market information between its industrial, medical and chemical businesses, AWI will seek to maximize the synergies and other benefits that stem from multi-unit management.
AWI will, in particular, focus on tightening collaboration between its consolidated fine chemicals technologies and its cryogenic air separation, engineering and other industrial gas-related technologies that the company has developed over the years. This will allow AWI to forge ahead with the development of new products for the industrial and medical sectors and also with the development of gas application and other next-generation technologies.

CONTACT: S. Kishi and J. Ishino
Public Relations, Air Water Inc.
20-16, Higashi Shinsaibashi 1-chome,
Chuo-ku, Osaka 542-0083
TEL: 06-6252-5411 / FAX: 06-6252-3965

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