Sumitomo Chemical Co. and Mitsui Chemicals Inc., which last year announced plans to merge under a joint holding company in October 2003, have agreed to let the holding firm absorb all entities in their groups by April 2004 to become a single company, company officials said Wednesday. The merger will be completed in two steps -- the establishment of the holding company and the full integration -- with an interval of six months. The two-step merger was agreed on to allow time for smooth integration of respective systems and personnel arrangements, the officials said.

The merged entity would surpass Mitsubishi Chemical Corp. in consolidated sales to become Japan's largest chemical company and the fifth largest in the world.

When the two chemical firms unveiled the merger plan last November, Sumitomo Chemical President Hiromasa Yonekura said that becoming a single entity would be the best situation for them.

Under the two-step procedure, according to the officials, the companies first plan to spin off respective general-purpose resin operations and unite them under a joint venture in October.

This is being pursued before the holding firm because imports have been intensifying competition in that area due partly to cuts in import tariffs, the officials said.

The companies will then set up the holding firm in October 2003 by transferring their outstanding shares and listing under the name of the holding firm.

The holding firm will take responsibility for managing Sumitomo Chemical, Mitsui Chemicals, and their group companies.

Finally, by around April 2004, the holding company will absorb all the companies under its management to complete the integration, the officials said.