Will Japan’s Crossborder M&A Boom Benefit Shareholders?   

• Despite the global credit crisis and plunging corporate profits, Japanese firms are buying overseas companies at a record pace in 2008, capitalizing on the recent surge in the yen and tumbling stock markets to pick up bargain-priced overseas assets they hope will drive future profit growth-- and hopefully, shareholder returns. Since January 2008, Japanese companies have spent a record $59 billion abroad on 291 deals everywhere from Brazil to Germany, according to Thomson Reuters (TRI). That's more than double the amount for all of last year and far exceeds the $25 billion invested at the peak of the bubble economy in 1990, when Japanese companies were snapping up US trophy acquisitions willy-nilly.
• The content of this in>out cross-border M&A by Japanese companies is markedly different now than in the bubble years. There is much more thought being put into the M&A deals being struck now, and they are in general much more strategic.  Moreover, active cross-border M&A activity is being seen in virtually every sector as Japanese companies desperately search for new growth opportunities.
• The key question however is, can Japanese management effectively integrate these mergers into a coherent global strategy that produces competititive returns to shareholders? Here, past experience is not encouraging. Japanese companies historically have tended to pay too much for their acquisitions and have had serious problems integrating large acquisitions, even when the merger involves two Japanese companies.
• Our working rule is that shareholders of the acquiree make out much better than shareholders of the acquirer?a case in point being the recent stock price movement of Sanyo Electric, who is in the process of being taken over by Panasonic.
• That said, there are some encouraging signs. The acquisition of the Gallaher Group by Japan Tobacco and of Pilkington by Nippon Sheet Glass show promise. In addition, several smaller acquisitions over time can be much better managed, a skill that Japan’s Nidec seems to have finely honed.

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