Time 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 US icons such as Firestone, Seven-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 home-grown firms are now among the hunted as well as the hunters.
Mergers and acquisitions (M and A) activity in Japan hit an all-time high of 2,775 deals last year, compared with just 260 in 1985. Now, from board rooms to living rooms, Emu-ando-Eh, as M and 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-based M&A consultancy GCA Co. “The psychological barriers are falling down.”
Investors and business leaders expect the next surge to begin 1 May, 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 US investment fund’s drive to revive a hapless Japanese bank through unforgiving western-style reforms.
The programme was an unexpected hit. But Japan’s grudging acceptance of takeovers as a cut-throat 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, toymaker Takara Co. launched a board game, called Game of Life M&A, to tap the 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 firms had time to ready takeover defences, such as so-called “poison pills”, measures 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 before. Analysts, bankers and even the government say fresh blood is badly needed.
After slogging through Japan’s decade-long slowdown, many Japanese firms are weakened to the point of requiring outside help to restore profits.
Direct foreign investment in Japan amounted to merely 2.1% of the country’s gross domestic product in 2003, compared with 22% in the US and 38% in the UK. The government now wants to double the amount of foreign investment by 2010.
Back in 1990, Japanese takeovers of foreign businesses accounted for 61% of all M&A activity there. That dwindled to just 15% 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%, and a rise in foreign buyouts of distressed Japanese assets.
The 2,775 M and A deals in Japan in 2006 were, but a fraction of the 13,691 in America and 14,702 in Europe, according to Thomson Financial. GCA’s Watanabe expects the Japanese M&A market to quadruple in the next five to 10 years.
But important milestones are already being chalked out. Just last year, Japan witnessed its first-ever hostile takeover attempt 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 finalized in April.
Perhaps the biggest watershed was US-based Citigroup’s tender offer bid for Japanese brokerage Nikko Cordial. That offer, which runs through Thursday and is valued at up to $13.4 billion, would be the largest-ever 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 gets a vulture’s reception.