Employment Situation Excellent
July jobs reports confirm the strong employment picture, with the unemployment rate at 4.1% and the job-to-applicant ratio at 1.09, the highest since 1992. The stat that really caught my eye was that the economy added 110,000 jobs. Japan's population is about 43% of America's, so the equivalent number for the US would be over 250,000 jobs. That's quite an accomplishment and provides overwhelming evidence that the economy is growing nicely.

Sumitomo Metals's Narumi in MBO, Chinese Firm Does Financing
Narumi China of Nagoya, a subsidiary of Sumitomo Metals and one of Japan's top makers of bone china tableware, will go private through an MBO funded through CITIC Capital Holdings, a state-owned Chinese investment management and advistory firm. The new ownership's business plan is to expand into China and Southeast Asia and, according to the press release, go public in three to five years. Citic Holdings will have 75%-80% of the newly issued shares, Narumi's 12-member management team will have 15% to 20%, and Sumitomo Metals will hold 10% for the next two years. Narumi's

As a business proposition, the MBO appears to make good sense. Within the Sumitomo Metals family, Narumi was a noncore holding that lied outside the company's main business. In its new incarnation, funded by an established Chinese investment firm, Narumi appears well positioned to expand outside Japan and achieve higher growth.

MBOs financed by foreign funds are still relatively new in Japan, but CITIC Capital already has some experience doing it for medium-sized companies. The best known example is Pokka, a leading soft drink manuracturer, which was done in 2005.

Oji May Abandon Bid
According to press reports, it appears increasingly likely that Oji Paper will abandon its bid for Hokuetsu Paper. Oji's offer runs until September 4 and now appears unlikely to succeed. Oji management has denied the report and says it will continue to work for the offer's success.

UPDATE On August 30, the president of Oji Paper said the takeover of Oji Paper was likely to fail. James Abegglen, chairman of Asia Advisory Service, said the company was too aggressive and should have worked behind the scenes to accomplish its objective. If Abegglen is right, it demonstartes that Japan's business community still feels most uncomfortable with aggressive M&A activity.

Venture Capital Developments
Business Week has an article on the state of Japan's venture capital industry. It's mostly "a few signs of change in the still-hidebound Japanese business culture" sort of article, interesting but somewhat anecdotal and with few surprises. It does provide a few revealing statistics, however. Unfortunately, the numbers are a little stale, but still likely indicative of the venture capital environment:

Japan's startups attracted just $1.7 billion in venture capital in the fiscal year through March, 2005, according to the Venture Enterprise Center, a state-funded research firm that surveyed 105 venture funds.That puts Japan's market at roughly half the size of China's and less than a tenth that of the U.S. (U.S. venture capitalists spent a mere $100 million in Japan last year.) And startups that can't get funding early on can kiss goodbye any hope of listing on Japan's small-cap markets, such as the Tokyo Stock Exchange's Jasdaq and Mothers bourse.

Births Up a Little from January to June
The number of birth rose slightly in the first half. If this trend continues through 2006, Japan's birth rate will increase for the first time in six years. The rate currently stands at 1.25, among the lowest of all industrial nations. The low birth rate has received widespread attention; the government has made some efforts to increase it, mostly without effect. Many Japanese consider the low birth rate one of the nation's biggest problems. The slight increase in births is probably indicative of the better economy, however, and may not be evidence of a turnaround in the long-term trend.

Konaka Takes Futata
After weighing buyout offers from Konaka and AOKI Holdings, menswear chain Futata has decided to accept Konaka's offer. According to press reports, Futata said that its financial advisor Sumitomo-Mitsu had reported that the two offers "were almost the same." Futata had a previously existing alliance with Konaka, and thus can build on their collaborative relationship. The new firm will become Japan's third-largest menswear chains. AOKI had previously stated that it would not attempt a hostile takeover of Futata if it was turned down.

Notably, Kennichi Ohmae has expressed his doubts about the wisdom of AOKI's bid. He argues that buying relatively small Futata would do little to help AOKI compete against its nemesis Aoyama Shoji, the number-one menswear chain, and that it would be buying Futata shares at a high price. Despite all the recent chatter about the dawning of a new M&A age in Japan, Ohmae thinks that, compared with the U.S., Japanese companies have only begun to take its first steps in this area.

M&A in Japan Up 9% from January to July
As Chako pointed out last week, recently released stats show a significant increase in Japanese M&A. This AP report does a poor job in indicating period-over-period increases, but the higher level of activity is still obvious:

Japan had 1,641 merger and acquisition deals worth more than 7.88 trillion yen (US$68.5 billion; euro53.86 billion) from January-July, according to data released by Recof Corp., a Tokyo-based merger consultancy. The total is up 8.7 percent from the same time last year, when Japan had a record 2,725 mergers worth 11.8 trillion yen (US$102.6 billion; euro80.67 billion) for the full 12 months.

Foreign acquisitions alone hit 173, reaching an all-time high of 4.45 trillion yen (US$38.7 billion; euro30.43 billion) in value, more than any other year in full. The previous record was in 3.41 trillion yen (US$29.7 billion; euro23.35 billion) in 2000.

AOKI Won't Pursue Takeover of Futata If Denied
President Aoki of AOKI Holdings has told reporters that, if men's clothing retailer Futata doesn't approve AOKI's plan for buying the company, it would not pursue a takeover bid. AOKI is Japan's second-largest men's store chain, but lacks a presence in Kyushu, where Futata is based. Besides AOKI, Futata has received an offer from Konaka, Japan's fourth-largest men's store chain, which already has a 20% stake in the company and is proposing a strengthened tie-up.

Futata is being advised by Mitsui-Sumitomo Bank and plans to respond to both offers by August 18. Mr. Aoki said that he believes AOKI has made the best offer; but if Futata says no, he would only tell to do their best. Market participants are questioning whether both offers are too high, since shares of both AOKI and Konaka have recently declined.

Oji's Takeover Attempt Appears to Be Flagging
The chances of Oji Paper taking over Hokuetsu Paper appear to be declining. On Friday, Hokuetsu Bank said it will not sell its two percent stake in Hokuetsu Paper. The target company had received a similar promise from another local bank, Daishi, the day before. Oji has said it has no plans to up its offer; but it may have to raise its bid before the September 4 deadline if it wants to complete the deal.

Japanese Companies Positive on the Economy
A poll of 100 top Japanese companies indicated broad-based optimism about business conditions. More than 90% expected the economy to keep expanding until next spring. Sixty percent expected the BOJ to increase rates again before next March. Note, however, that the poll was taken before the government announced that growth in the April-June quarter was a weaker-than-expected 0.8%.

Economic Recovery Benefits Career Service Firm
With Japan's economic recovery extending to one of the longest in post WWII history, businesses need to fill many positions. Some of the personnel and career service firms benefit from this needs, including en-japan, inc (Ticker: 4849), a young company founded in 2000 that provides web-based career change and temporary job information. It just reported the result for the 6 month period ended June 2006, with a 40.1% rise of sales and 25.6% increase of net profit.

Japan's M&A Increases
Nikkei reports that total amount of domestic (between Japanese companies) M&A for the months between January and July 2006 totaled 7 trillion 880 billion yen, a 9% increase from the same period last year and may lead to a record transaction volume for the entire year. In particular, acquisitions through TOB (like the case by Oji Paper that Bob has been reporting) increased rapidly to 3 trillion yen. This is a substantial change from long history of aversion by Japanese companies of acquisitions, particularly hostile takeovers.

Oji Faces Tough Battle for Hokuetsu
The forces against Oji Paper's takeover of Hokuetsu are gathering steam. Daio Paper, one of Japan's largest paper makers, said last week the combination would violate Japan's anti-monopoly law and will file a report detailing its stance with Japan's Fair Trade Commission. In addition, Mitsubishi completed its purchase of 50 million Hokuetsu shares for a 24.4% stake in the company. Bloomberg quotes James Abbegglen:

It's become messy with all the anti-Oji movement...it will cast a very deep doubt on future takeovers. Companies will be more reluctant than in the past to attempt hostile takeovers.

Nippon Paper Moves into Hokuetsu Battle
The fight for Hokuetsu Paper continues to ramp up. Now Nippon Paper has taken an 9% stake in the embattled company, as it strives to stave off Oji's quest to become the first Nikkei 225 firm to complete a hostile takeover of a listed company. Together with Mitsubishi's 24% stake in Hokuetsu, shareholders adverse to Oji may wind up with more than one-third of Hokuetsu's voting rights, which would allow them to reject crucial decisions at shareholders' meetings.

The spectacle of Japan's blue-chip firms engaging in M&A practices typical in America but rare in Japan is starting to generate interesting commentary. William Pesek Jr. at Bloomberg's argues we may be seeing the start of an M&A explosion in Japan, which would make the economy much more efficient and also raise stock prices. On the other hand, with management creating roadblocks for a plan which ticks all the right boxes for Hokuetsu shareholders, it appears we're also witnessing a very traditional Japanese reaction to unfriendly corporate advances.

Oji Paper Presses Ahead with Takeover Bid
Oji Paper announced that it will pursue its bid for Hokuetsu Paper Mills, despite the alliance Hokutetsu arranged with Mitsubishi to thwart the takeover. The press release with full details of the offer states that Oji Paper will offer Y800 per share for the shares, representing a 2% premium to the recent closing price. If Hokuetsu's arrangement with Mitsubishi is rescinded, the price would rise to Y860 per share. The tender offer period will extend 34 days to September 4. The bid has attracted much attention, because it represents the first large-scale takeover attempt by a Japanese blue-chip of another.

Post Office Privatization Plan Released
Japan Post has announced some details of its privatization plan. The entity will be split into four units -- banking, insurance, mail delivery, and counter-service management. The bank, to be known as Yucho Bank, will be the world's largest with some $2 trillion in assets. It will offer consumer financing and also sell bonds and investment trusts (i.e., mutual funds). The privitazation plan will be carried out over ten years. At least for now, total head-count will decrease only slightly (AP, Yomiuri)