Hitachi Ltd has launched tender offers to buy shares in five of its listed subsidiaries, the company announced in a press release on 28 July 2009. Hitachi, which seeks to raise profitability by consolidating marketing and technological development within the group, would ultimately delist the subsidiaries if the plan is successful, according to the press release.

If Hitachi gains control of more than two-thirds of the voting shares of a subsidiary through the tender offer, any minority shareholders would be forced to swap their shares for Hitachi stock. The targeted subsidiaries include:

Until now, Hitachi has been at the forefront of Japanese companies promoting the practice of listing subsidiaries, a characteristic of many Japanese conglomerates. Through the practice, parent companies can raise capital with subsidiary shares and benefit by knowledgeable analysts and investors evaluating the subsidiaries.

Additionally, subsidiaries can more easily access outside financing when their shares are listed. The policy reversal by Hitachi suggests that the practice of listing subsidiaries may warrant review for several reasons.

For one, part of a listed subsidiary's profit flows out to minor shareholders of the subsidiary. Further, diluting parent ownership of subsidiaries through listing them weakens the parent's control over the subsidiary. As a result, the parent may not be able to flexibly set unified policy beneficial to the whole conglomerate's profit. Co-ordinating among the interests of the conglomerate and minor shareholders can potentially consume limited and valuable management resources.

The stock swap system, introduced in 1999, contributed to the trend of delisting conglomerate subsidiaries. Using stock swaps, Panasonic, Sony and Citizen delisted a total of eight subsidiaries between 2002 and 2005.

Current low stock prices may accelerate the trend. Investors may want to consider "consolidation risk" of shares in subsidiaries of Japanese conglomerates.

The Tokyo Stock Exchange is now reviewing new listing regulations to protect minor shareholders.