Mon, Jan 16, 2012 page11

• Japanese firms show off resurgent buying power

  TAKE TWO: With the strong yen, Japanese companies are again turning to overseas investments, but unlike in the 1980s, they are now seeking returns and profits

  • AFP, TOKYO
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  Japan Inc is on an acquisitions march across Asia and around the world, new figures show, as firms armed with ever more valuable yen take strategic advantage of the currency’s post-war highs.

  Western economies have been left in turmoil by the global financial crisis and eurozone debt woes.

  And in recent years, Japan’s economy has been eclipsed by that of China, which has overtaken its neighbor to take second place in global GDP rankings on the back of rampant growth that has underpinned much of the global economy.

  

  Yoichiro Ushioda, right, chairman of Japanese building materials maker Lixil, shakes hands with Nicola Greco, chief executive office of Italian curtain walls maker Permasteelisa, at a press conference in Tokyo on Dec. 9 last year.

  Photo: AFP

  However, last year Japanese firms made 198 corporate purchases across the rest of Asia, mergers and acquisitions researchers Recof Data found, an all-time high and well above the previous record of 153 in 2005.

  Worldwide, the number of deals reached 455, only just short of the record of 463 in 1990, the peak of Japan’s last global spending spree, when it bought up iconic firms and properties, especially in the US.

  By value, last year’s total came to ￥6.3 trillion (US$81 billion), up 67 percent on the previous year and the third-highest figure since the Recof survey started in 1985.

  With their home market aging rapidly and expected to decline in the future, Japanese firms face deep-rooted challenges and have little choice but to look abroad for growth, both in markets and production, analysts say.

  Japanese Prime Minister Yoshihiko Noda has encouraged the trend.

  “We will take advantage of the merits of the appreciating yen to support Japanese companies in purchasing foreign companies and acquiring resource interests,” he said in September.

  Takeda Pharmaceutical Co’s US$14 billion takeover of Swiss drug giant Nycomed was Japan’s biggest deal last year and beverage group Kirin Holdings bought most of Brazilian beer and soft drink maker Schincariol for US$2.6 billion.

  In natural resources, Mitsubishi spent more than US$5 billion on buying a quarter of mining giant Anglo-American’s Chilean copper unit, while trading group Itochu Corp took a US$1 billion stake in US oil and gas firm Samson Investment.

  “M&A [mergers and acquisition] is now seen as [almost] a corporate tool just like any other. Fifteen years ago it still had associations with gangsterism and god knows what,” said Charles Maynard, co-founder of mergers and acquisitions specialists Business Development Asia.

  “Corporate Japan is becoming more confident about itself and that it can manage foreign acquisitions and more particularly foreign management teams, workforces and cultures,” Maynard said. “This is coupled with the dire realization that they don’t have any other realistic alternatives if they are going to grow internationally in many sectors.”

  The strong yen is catalyzing the acquisition boom, specialists say.

  After the so-called “lost decade” of low growth in the 1990s, Japan’s adoption of near-zero percent interest rates saw the yen become a relatively weak currency in the 2000s.

  Investors would borrow yen to take advantage of the low costs of doing so and sell them for other currencies where they could earn higher interest rates, pushing the unit’s value down further.

  However, the 2008 global financial crisis saw other economies also drop interest rates to minuscule levels and the incentive disappeared.

  The yen has since acquired a new and unusual status as a safe haven, reinforced by the eurozone debt crisis raising investor concerns about the single currency.

  The Japanese unit rose even further after the earthquake and tsunami disaster in March last year, on expectations assets held abroad would be repatriated to help pay for the reconstruction.

  The yen has since set a series of post-World War II highs against the US dollar, remaining close to those peaks, and has also reached an 11-year mark against the euro.

  That means Japan’s exporters are struggling to sell products that have become ever more expensive to their overseas buyers, but it also means foreign acquisitions are cheaper in yen terms than they have been for a lifetime.

  The buying spree has echoes of the late 1980s boom years, when Japanese firms bought up familiar assets ranging from the Rockefeller Center and other prime New York City properties, to Universal Studios and Columbia Records.

  Many of the acquisitions ended badly and Japan came to be seen as a financial predator, a nation to be feared for its incomprehensibility and vast wealth rather than as a partner.

  However, times have changed, said Kenji Madokoro, a senior consultant at Daiwa Institute of Research.

  “In the late 1980s before the bubble economy burst, Japanese firms rushed overseas and bought out properties aggressively, which drew sharp criticism abroad,” he said. “Japanese companies have learnt the lesson from the past. Now, they are going abroad in a more practical manner. Japanese companies are seeking actual returns or visible profits.”
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