Wednesday, April 25, 2007


ime was when Japan Inc. shunned the heady world of corporate raiders as a vulture club anathema to the country’s consensus culture.

When stomached at all, Japanese takeovers typically preyed on foreigners, most notoriously gobbling up U.S. icons such as Firestone, 7-Eleven and Columbia Pictures.

But in a sign of new openness in the world’s second-largest economy, merger mania has gripped the nation and homegrown firms are now among the hunted as well as the hunters.

Merger and acquisition activity in Japan hit a peak of 2,775 deals last year, compared with just 260 in 1985. Now, from boardrooms to living rooms, “Emu-ando-Eh,” as M&A is known, has entered common parlance and is upending business as usual.

“Definitely, we are in a merger boom,” said Akihiro Watanabe, a partner at the Tokyo M&A consultancy GCA Co. “The psychological barriers are falling down.”

Investors and business leaders expect the next surge to begin May 1, when a new law takes effect making it easier for foreign companies to buy Japanese rivals through swapping shares, something all but barred in the past.

Foreshadowing the change, a television show called “Hagetaka,” or “Vultures,” aired earlier this year dramatizing a fictional U.S. investment fund’s drive to revive a hapless Japanese bank through unforgiving Western-style reforms.

The program was an unexpected hit. But Japan’s grudging acceptance of takeovers as a cutthroat reality of everyday business has been fitful at best.

Takeovers have long been frowned upon in a country that shuns heated showdowns and prizes consensual management. So as not to stigmatize the seller as the “loser,” parties typically paint the buyout as a merger of equals.

“The traditional view of your company is that it’s your child, and you would never sell your child. But now that attitude is slowly changing,” said David Snow, editor of Private Equity International, a specialty publication tracking global deals.

In late 2005, toy maker Takara Co. introduced a board game called “Game of Life M&A” to tap into growing public fascination with the trend. But it pulled the product last year after its chief inspiration, freewheeling entrepreneur Takafumi Horie, was arrested for accounting fraud at Internet firm Livedoor Co., a former darling of the M&A crowd.

Even the merger law taking effect next month was delayed for a year by lawmakers so Japanese companies had time to ready takeover defenses such as “poison pills” that weaken share prices and make the company less attractive to unwanted suitors.

The new law allows overseas businesses to buy Japanese ones by swapping shares in a domestic subsidiary. That should lighten the load of having to pay cash, as nearly all foreign companies had to do previously.

Analysts, bankers, and even the government say fresh blood is needed.

After slogging through Japan’s decadelong slowdown, many Japanese companies are weakened to the point of requiring outside help to restore profits.

Direct foreign investment in Japan amounted to a mere 2.1 percent of the country’s gross domestic product in 2003, compared with 22 percent in the United States and 38 percent in Britain. The government now wants to double the amount of foreign investment by 2010.

Back in 1990, Japanese takeovers of foreign businesses accounted for 61 percent of all M&A activity in the country. That dwindled to just 15 percent last year, according to Recof, a market research company based in Tokyo.

The tumble was offset by a surge in domestic deals, which now account for 78 percent of M&A activity, and a rise in foreign buyouts of distressed Japanese assets.

The 2,775 M&A deals in Japan in 2006 were but a fraction of 13,691 in the United States and 14,702 in Europe, according to Thomson Financial. GCA’s Mr. Watanabe expects the Japanese M&A market to quadruple in the next five to 10 years.

But important milestones are already being recorded.

Last year, Japan witnessed its first hostile-takeover attempt between domestic blue-chip companies when Oji Paper Co. tried but failed to buy Hokuetsu Paper Mills.

Also turning heads was Japan’s biggest takeover of a foreign firm Japan Tobacco’s $15 billion buyout of Britain’s Gallaher Group, a deal completed in April.

Perhaps the biggest watershed was Citigroup’s tender offer for Japanese brokerage Nikko Cordial. That offer, which ends today and is valued at up to $13.4 billion, would be the largest foreign takeover of a Japanese company.

Today, all the big private equity firms, including Kohlberg Kravis Roberts & Co., Permira and the Carlyle Group, have offices in Japan. Yet, some still get a vulture’s reception.

When the U.S. investment fund Steel Partners announced in February it wanted to take a controlling 66 percent stake in Sapporo Holdings, one of Japan’s biggest breweries, the initial response was an emphatic “no.”

In an ironic twist, Sapporo and archrival Asahi Breweries Ltd. considered the idea of a capital tie-up to block the overseas interloper. That fell through, and Sapporo has since bolstered its poison pill gambit as it stalls for time.

Shareholders may be the final arbiter of whether Japan further warms to M&A. After years of suffering interest rates close to zero, average Japanese have entered the stock market in droves for the first time seeking higher returns.

Unlike the old-boy networks that tied up shares between conglomerates and were often vilified for perpetuating the cozy status quo of Japan’s loss-making “zombie” companies, the new breed of private investor has its eyes on profits.

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