Wed, Jun 07, 2017 - Page 11 News List

Japan’s business buying spree brings soured deals

ABROAD:As Japanese society ages and its market shrinks, companies are seeking investments overseas, and the buying boom is not showing signs of slowing


Companies in Japan, which have been snapping up everything from drugmakers to beer brands in the biggest overseas acquisition spree on record, are beginning to feel the pain from some of the soured deals of the past.

Companies in Japan booked at least ¥2 trillion (US$18 billion) of writedowns on their overseas assets in the fiscal year ended in March, according to Bloomberg calculations based on the latest earnings reports released through the middle of last month.

Toshiba Corp reported a ¥1.36 trillion loss from its purchase of Westinghouse Electric Co, pushing the Japanese technology company to sell assets to stay afloat, while Sony Corp recorded an impairment on the value of its film business, which helped make the recent Ghostbusters reboot.

Dealmakers in Japan blame some bad deals on a corporate culture that encourages firms to seek out viable targets, but discourages them from focusing on vital details like valuation and compatibility, according to executives Bloomberg interviewed.

What can make matters worse is acquirers are often slow to cut losses when things do not work out, the executives said.

“Salarymen-managers struggle to make decisions and that leads to more losses,” said Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co, suggesting that more overseas merger disasters might be inevitable.

Some of the other large-scale writedowns in the latest earnings season include: ¥400 billion by Japan Post Holdings Co on Toll Holdings Ltd in Australia and Sumitomo Metal Mining Co’s ¥80 billion on its mine operations in Chile.

Commenting on the writedown that led to Japan Post’s first loss after going public in 2015, Kunio Yokoyama, president of its postal unit, in April said that the company rushed to buy the Australian freight transport firm and ended up overpaying.

Nidec Corp president Shigenobu Nagamori, who has seen his company’s share price beat market benchmarks even after making a slew of corporate purchases, said the key to making successful acquisitions is straightforward.

“It’s easy to buy, but you can’t make profit from even a good company if it’s expensive,” he said at an earnings conference in April when asked what makes a successful deal. “You cannot rush. Only advisers benefit through fees.”

Over the past five years, the Kyoto-based maker of small, precision motors has made more than 20 acquisitions, including the US$1.2 billion purchase of Emerson Electric Co’s motor, drive and power-generation businesses completed in February.

During the same period, Nidec shares have more than tripled, outperforming the 135 percent increase in the Nikkei 225 Stock Average. Since its founding in 1973, Nidec has purchased more than 40 companies.

Companies led by founders, such as Nidec and Masayoshi Son’s Softbank Group Corp, have an advantage over firms with appointed presidents when making merger and acquisition decisions, said Tomonori Ito, a professor at Hitotsubashi University’s Graduate School of International Corporate Strategy.

“Compared to those who happen to be presidents at companies owned by somebody else for four years, the level of commitment held by founder-presidents is different,” Ito said.

“They can make decisions on what would benefit the company more from a longer-term perspective,” he added.

Yet, despite recent writedowns, Japanese companies are showing few signs of slowing down, even after announcing US$105.6 billion of overseas acquisitions last year — the most since Bloomberg started tracking the data.

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