Struggling second-tier construction companies Kumagai Gumi Co. and Tobishima Corp. will scrap their planned April 1 merger, the two companies announced Monday.

The contractors, which announced the plan 12 months ago, changed course after concluding the costs of integrating computer systems and personnel cuts would be bigger than expected.

Kumagai Gumi President Kazutoshi Torikai and Tobishima President Yoshiharu Tomimatsu told a joint news conference in Tokyo they decided the companies wouldn't be able to benefit from the merger.

"We have come to the conclusion that it is difficult to convince our shareholders and employees about the benefit of the merger," Tomimatsu said. "Integrating (the two companies') information systems will bear a significant cost," Torikai said, declining to give specific figures.

Industry sources said financial assistance from the companies' main creditor banks -- Sumitomo Mitsui Banking Corp. for Kumagai Gumi and Mizuho Corporate Bank for Tobishima -- also helped with the decision to scrap the merger plan.

Kumagai Gumi and Tobishima started experiencing financial difficulties after the asset-inflated bubble economy collapsed in the early 1990s.

While seeking to turn themselves around with help from their main creditors, the contractors reached an accord in April 2003 to integrate, possibly under a holding company. Seven months later they decided to seek a merger in view of the shrinking construction market.

Since then, they have exchanged civil engineering and construction knowhow, as well as technical experts.

In the 2003 business year, which ended in March, Kumagai Gumi posted a group net profit of 280.21 billion yen and a pretax profit of 2.78 billion yen on sales of 341.74 billion yen.

In the same year, Tobishima incurred a 4.18 billion yen group net loss but booked a 3.50 billion yen pretax profit on sales of 209.20 billion yen.