Japanese companies, which have embarked on a US$210 billion global acquisition spree over the past three years, are getting a surprise bargain out of “Brexit.”
The yen soared on Friday to its highest in more than two years, boosting Japanese firms’ purchasing power for deals abroad and potentially saving them hundreds of millions of dollars on purchases they have already announced.
NTT Data Corp and Asahi Group Holdings Ltd are among Japanese companies with a combined US$23 billion of overseas acquisitions agreed to in the past 12 months that are still pending, data compiled by Bloomberg show.
The unexpected windfall could offer a small silver lining as export-driven corporate Japan braces for economic uncertainty, with the TOPIX index falling on Friday by its most since 2011.
Canon Inc, the world’s biggest camera maker, said that British voters’ decision to leave the EU could undermine the economic recovery in Japan, while automotive supplier Exedy Corp said it might consider moving its office out of the UK.
“It’s a bargain for those Japanese firms which have built cash in yen at home and have an acquisition deal in the works,” said Makoto Shiono, a Tokyo-based partner at merger advisory firm Industrial Growth Platform Inc. “The cost of their deals clinched in US dollars and euros has gotten lower.”
Japan’s currency jumped as much as 7.2 percent on Friday, its most in more than three decades, and strengthened past ¥100 per US dollar for the first time since 2013. It is now up 17 percent since the start of the year. The yen gained as much as 10 percent against the euro, its highest intraday rise in more than seven years.
The biggest pending outbound deal from Japan is NTT Data’s US$3.1 billion purchase of Dell Inc’s technology services businesses, according to data compiled by Bloomberg.
NTT Data, an arm of the former Japanese telephone monopoly, clinched the deal in March when the US dollar was valued at about ¥113.45. The Japanese currency climbed as far as ¥99.02 to the US dollar at one point in Tokyo trading on Friday, shaving about ¥44 billion (US$430.3 million) off the local-currency price tag for the deal.
Asahi Breweries Ltd in April agreed to buy Anheuser-Busch InBev NV’s Peroni, Grolsch and Meantime brands for 2.55 billion euros (US$2.84 billion). The Japanese beermaker agreed to acquire the brands in February, when the euro was trading at about ¥128. The Japanese currency strengthened on Friday to as much as ¥109.57 to the euro, at that point making the deal about ¥47 billion cheaper for Asahi in local-currency terms.
The yen could weaken in coming days if market jitters subside or the Bank of Japan intervenes in the currency market, which would erase some of the benefits for Japanese acquirers. The actual price of the purchases might not be affected if the companies pay for them with foreign currency they hold or borrow offshore to fund the deals.
Asahi said in an e-mailed statement it does not expect the UK vote outcome to have an effect on its purchase of the European brands.
The company would use external funds to pay for the acquisition, Asahi spokesman Takuo Soga said by telephone, declining to comment further.
NTT Data has not decided how it will finance the acquisition from Dell, and it has not set a target completion date, NTT Data spokesman Nobuhiko Toda said by telephone.
Including deals at home, cash-rich Japanese companies have been involved in US$66 billion of acquisitions this year, according to data compiled by Bloomberg.
Uncertainty in Europe is set to erode Japanese companies’ appetite for business expansion in the region, and they might take a wait-and-see approach toward substantial investment, SMBC Friend Securities Co chief market economist Mari Iwashita said.
“If you are a brave investor, the UK is on sale right now,” Hogan Lovells Tokyo-based corporate partner Jacky Scanlan-Dyas said by telephone. “The pound is very low and interest rates are very low — but in my experience Japanese corporates don’t invest for short-term profits, they invest for long-term relationships.”
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