Japan Has More Old Companies than Other Countries
An interesting piece in Yomiuri Online says more old companies are to be found in Japan than any other country. I'm not sure if this is correct, but the article seems to be saying that Japan has over 100,000 businesses that are more than 100 years old. The article certainly says that Japan has more than 100 businesses that were established before the 14th century, ie, before the oldest known companies in France.

I find this longevity surprising, because the 20th century was turbulent in Japan, and I would have thought most old businesses had disappeared. But then again, there's the famous example of the zaibatsu reconstituing itself after the War, even in the face of opposition of the American occupation.

It seems in the US we place great store in protecting old buildings from being torn down, while the Japanese, at least comparatively speaking, couldn't give a damn. In contrast, the Japanese take it hard when an old firm dies, but in the US we place relatively little importance on maintaining old businesses. (Although I suppose a lot depends on how you define "maintain old business." AT&T and Bank of America are still around, but only because their new owners want the cachet of their names, not anything about the underlying businesses themselves.)

Impact of New M&A Rules
The Financial Times had a good article yesterday on the impact of the introduction of triangle mergers in Japan. It summarizes many of the points knowledgeable observers have made, namely:

(1) The new rules are almost exclusively for friendly takeovers, thus restricting their scope.

(2) Transactions will also be limited because Japanese tax authorities will consider them taxable events under rules that might be difficult to circumvent. Foreign companies may be forced to set up actual operating subsidiaries in Japan to enable the transactions, which defeats the purpose if that's precisely the kind of business they are seeking to acquire.

(3) Because of the new rules and previous law changes, Japanese companies are busy introducing poison pill and other defenses against takeovers. Nevertheless, there is some improvement in corporate governance to be seen, because the companies are now asking for shareholder approval first.

(4) The impact of the new rules may not be more foreign company takeovers, but rather increased consolidation among domestic firms -- a trend that will improve companies' profitability.

Is Japan's Suicide Rate So Abnormally High?
We see lots of news stories like this one from the AP that say Japan has one of the world's highest suicide rates among industrialized countries. However, a quick search found this World Health Organization page on world suicide rates that show Eastern European nations like Lithuania and Hungary have notably higher rates. (We're talking about guys here -- women have much lower rates everywhere.)

Even if the WHO data is somewhat old and even if Hungary isn't quite the industrialized nation Japan is, the data does raise the question whether Japan deserves its unwanted reputation. Suicide rates in countries like Finland and even Belgium are not all that different from Japan's. Add into the equation certain cultural factors -- the US's relatively low rate may merely average out lower rates among Catholics against higher rates among non-Catholics -- and Japan's suicide level may not be all that different from other industrialized nations.

Japan's "Lost Generation" of Workers
Business Week has a good article about the problem of underemployment of 25- to 34-year-olds in Japan. These young men and women came of age after the Bubble Collapse and have never been fully integrated into the workforce -- even as the country's economy now recovers.

The article breaks down several groups within this cohort. There's keiyakushain, contract workers at companies paid at lower rates than salarymen; hakenshain, employed by temp agencies; freeters, who go from one dismal job to the next; and NEETS (an acronym coined in Britain for those not employed, in education, or in training).

Although the phenomenon of contract workers receiving less pay and fewer benefits than regular staff for the same work can certainly be found in the US, the Japanese situation is structurally different.

US workers in their 40s and 50s have a hard time gaining full-time employment, especially by high-tech companies. But if you've picked up good skills as a contract worker and you're still in your late 20s or early 30s, it's relatively easy to get full-time employment at your current company or another firm. In Japan, these workers represent a "lost generation," since most firms much prefer hiring new graduates rather than those who have been contract workers for long stretches.

Japan is now making efforts to re-integrate these workers, who number 3.3. million, into the workforce; but at least from what can be gleaned from the BW article, not much is being done. The underemployment raises further difficulties for the country as it tries to lift its birth rate and solve its pension problems.

The Impact of Triangular Mergers on Japanese M&A
The introduction this month of triangular mergers (see our recent post) is causing much debate on the law's possible impact. Some salient points:

(1) According to the EU, the level of cross-border mergers in Japan compared with that of the EU and the US is minuscule. The value of cross-border mergers (sales) in Japan amounted to US$2,512 million in 2005, while it was US$429,146 million in the EU and US$105,560 million in the US. The value of cross-border mergers in the EU is thus 170 times higher, and in the US 42 times higher than in Japan.

(2) As reported by the WSJ (subscription may be required), the law is unlikely to increase hostile mergers, since a two-thirds majority of shareholders must approve, as well as the board of directors.

According to the JT, "Japanese businesses fear that a hostile takeover would be possible if a foreign company launches a public tender offer to acquire a majority share in a targeted Japanese firm, then installs sympathetic members on the board. If the foreign business can purchase more than two-thirds of the voting rights, carrying out a triangular merger will be possible. However, considering how much cash would be required to pull off a takeover in this fashion, many M&A experts question whether such a tactic will be popular."

(3) For the merger to be tax-free, the foreign subsidiary must have an actual, physical presence in Japan, including office and staff. Thus entities that have been established just to meet the merger are unacceptable.

(4) Some Japanese columnists such as Nobuo Sayama of advisory firm GCA point out that Japanese companies have much smaller market capitalizations than their US and European counterparts, which is why company managements are so afraid of being gobbled up by them.

(5) Interestingly, though, Sayama and others believe that the new law easing triangular mergers won't necessarily have that much impact. Rather, it will be one more factor in an environment that overall will tend to increase M&A activity in Japan.

Triangular Mergers Introduced in Japan
New rules introduced in May will allow so-called sankaku gappei, or triangular mergers. These will permit a foreign firm with a Japanese subsidiary to acquire a Japanese company by having it merge with the Japanese sub. In this post I will discuss some background and details; in a follow-up post, I'll talk about the possible effects of the new law on Japanese business and investors.

As described in a brief paper by the Pillsbury law firm, formerly a foreign firm could use as consideration only shares of its sub to buy a Japanese company, which was impractical because this stock was rarely publicly traded. Now acquirors will be able to use cash, bonds, and other assets, including shares of the foreign parent. The new rules will apply to other reorganizations, such as stock swaps where the acquired company remains a sub of the foreign subsidiary.

The new rules are intended to raise foreign direct investment in Japan. According to the Japan Times, Japan wants to raise the proportion of foreign investment in GDP to 5% in 2010 from 2.2% in 2005.

But the new rules have met with opposition from Japan's business community. Originally intended to be introduced in 2006 following passage of a revised Company Law in 2005, implementation was postponed for a year. The Japan Business Federation (the Keidanren) continues to oppose the new rules and has been working to introduce rules that would make it more difficult to carry out triangular mergers.

In general, the new rules have added to the anxiety about M&A in Japan. According to the Times (London), at this year's round of shareholder meetings some 200 Japanese management teams will be proposing "...antitakeover strategies, including poison pills, golden shares and so-called advance-warning systems (AWSs)."