The Problems of Japanese M&A
FinanceAsia has published a long, excellent aritcle on Japanese M&A. Among its many salient points:
(1) Equity capital markets in Japan are contracting while debt markets stay steady. The reason is that companies don't want to increase their freefloat and thereby allow potential acquirers get their hands on any ownership.
(2) At the same time, M&A in Japan is not doing badly, up about 10% year over year in the April-September period to about $400 billion.
(3) Still, the numbers for calendar year to date are flat, and any recent increase is from a relatively small base. Japan doesn't like the mass firings that often accompany M&A, and managements don't think mergers are good for company or staff. Japanese managements feel less obliged to reward shareholders with high stock prices.
(4) Partly because of the lack of emphasis on share price, Japanese firms see themselves as targets rather than equal players. They point out that their market caps are relatively low, which makes them vulnerable to takeover; correspondingly, they also lack the muscle to be acquirers.
(5) The somewhat-heralded new triangular mergers law has for now turned out to be mostly a bust. Although the big takeover of Nikko Cordial by Citi was indeed such a merger, the code regulating domestic M&A is actually far more convenient.
(6) The article's conclusion is that, while Japanese M&A will continue, there won't be a big spike of large, international deals. "...It will be successful Japanese companies offloading their subsidiaries or buying profitable new ones (“Domestic, friendly, inter-and-intra group” as the EIU puts it)."
The big problem I see in Japanese M&A is that, as the article states, M&A has traditionally meant lopping off a whole bunch of people to produce efficiencies and cost savings. In the US we accept that, more or less, for a variety of reasons -- we believe no job lasts forever, our unions aren't strong, job markets are fluid, etc. In Japan, people who get laid off don't believe they are soon going to get comparable work, and they are right.
Add to that the sense of Japanese managers (and apparently domestic shareholders) that stock price isn't the be-all and end-all; that foreign firms like Steel are predators taking advantage of the mispricing of Japanese companies; and that acquirers should add something more to the mix than just boosting shareholder value, and it's little wonder that M&A sits uncomfortably with many Japanese.
Overseas acquirers will need to devise new strategies if they want to allay these misgivings. These methods could include promises to keep staff on or finding them new jobs, investing cost savings in communities and environmental enhancement, or putting new money into the business. One way or the other, overseas acquirers will need to recast their current image of invading capitalists if they are to enjoy success in Japan.
FinanceAsia has published a long, excellent aritcle on Japanese M&A. Among its many salient points:
(1) Equity capital markets in Japan are contracting while debt markets stay steady. The reason is that companies don't want to increase their freefloat and thereby allow potential acquirers get their hands on any ownership.
(2) At the same time, M&A in Japan is not doing badly, up about 10% year over year in the April-September period to about $400 billion.
(3) Still, the numbers for calendar year to date are flat, and any recent increase is from a relatively small base. Japan doesn't like the mass firings that often accompany M&A, and managements don't think mergers are good for company or staff. Japanese managements feel less obliged to reward shareholders with high stock prices.
(4) Partly because of the lack of emphasis on share price, Japanese firms see themselves as targets rather than equal players. They point out that their market caps are relatively low, which makes them vulnerable to takeover; correspondingly, they also lack the muscle to be acquirers.
(5) The somewhat-heralded new triangular mergers law has for now turned out to be mostly a bust. Although the big takeover of Nikko Cordial by Citi was indeed such a merger, the code regulating domestic M&A is actually far more convenient.
(6) The article's conclusion is that, while Japanese M&A will continue, there won't be a big spike of large, international deals. "...It will be successful Japanese companies offloading their subsidiaries or buying profitable new ones (“Domestic, friendly, inter-and-intra group” as the EIU puts it)."
The big problem I see in Japanese M&A is that, as the article states, M&A has traditionally meant lopping off a whole bunch of people to produce efficiencies and cost savings. In the US we accept that, more or less, for a variety of reasons -- we believe no job lasts forever, our unions aren't strong, job markets are fluid, etc. In Japan, people who get laid off don't believe they are soon going to get comparable work, and they are right.
Add to that the sense of Japanese managers (and apparently domestic shareholders) that stock price isn't the be-all and end-all; that foreign firms like Steel are predators taking advantage of the mispricing of Japanese companies; and that acquirers should add something more to the mix than just boosting shareholder value, and it's little wonder that M&A sits uncomfortably with many Japanese.
Overseas acquirers will need to devise new strategies if they want to allay these misgivings. These methods could include promises to keep staff on or finding them new jobs, investing cost savings in communities and environmental enhancement, or putting new money into the business. One way or the other, overseas acquirers will need to recast their current image of invading capitalists if they are to enjoy success in Japan.
posted by Bob at 5:54 PM
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