Update on Kawasaki/Suzuki Merger

``It's extremely likely that we'll set up a joint venture,'' said Kawasaki Heavy president MasamotoTazaki in an interview. ``Kawasaki and Suzuki are trying as hard as they can to eliminate the divisionsin our companies and compete against Honda (Motor Co.) and Yamaha (Motor Co.) as theKawasaki-Suzuki group.''

A merger of the two companies' motorcycle units would extend a plan under way since August tocombine output and development of several models...

The reduction of surplus capacity in Japan'smotorcycle industry is long overdue with domestic sales now less than a third of their peak twodecades ago, analysts said.

``The two companies are pretty effective and their merger in motorcycles will be good,'' said DaiNishiyama, who helps manages about 1 trillion yen ($7.9 billion) in assets at SG Yamaichi AssetManagement Co. ``As to which company's shareholder will benefit from the merger, it really dependson how the pact takes place.''

Kawasaki Heavy shares had their biggest gain in two week, rising as much as 4.4 percent to 119 yenwhile Suzuki shares gained a much as 2.4 percent to 1,314 yen in Tokyo trading. General MotorsCorp. owns 20 percent of Suzuki.

Kawasaki Heavy, the maker of the Ninja sport bike, and Suzuki, the world's No. 3 motorcycle maker,lag Honda and Yamaha, which together control 82 percent of the Japanese market.

A future agreement to combine the motorcycle businesses would probably see both companies'two-wheeler divisions separated to form a jointly held entity, Tazaki said.

``Suzuki would separate its motorcycle division from its car business and spin it off,'' said KawasakiHeavy's Tazaki. ``Motorcycles are just one part of our company so we could spin that off and join thebusinesses together.''

The company plans to unveil a new motorcycle with Suzuki under a new brand in three years.

``It won't be a Kawasaki, it won't be a Suzuki it will be a third brand,'' said Tazaki.

Domestic sales of motorcycles in the first 11 months of this year have fallen 4.3 percent to 969,000units, the Japan Automobile Manufactures Association said.

Kawasaki Heavy said last month its loss in the first half ended Sept. 30 narrowed by 81 percent to2.3 billion yen while Suzuki said group net profit in the half rose 2.3 percent to 11.1 billion yen.

Kawasaki Heavy expects a full-year profit of 7 billion yen on sales of 1.15 trillion yen. Suzuki expectsa profit of 21 billion yen for the year to March 2002.

``Once measures to withdraw from some of the poorer businesses are more concretely laid out you'llprobably see more investor interest'' in Kawasaki Heavy, said Masanori Wakae an analyst at ShinkoSecurities Co.

Kawasaki Heavy builds ships and rail cars, factory machinery including robots and aircraftcomponents for Boeing Co.'s 767 and 777 jetliners.

Moody's Investors Service said last week it may cut Kawasaki Heavy's credit rating because ofslumping demand for aircraft and industrial equipment. The machinery maker's efforts to generatemore aerospace sales are being stymied by the drop in air travel that has forced customer Boeing toscale back production.