Japan Showing New Fondness For Mergers

Japan Inc is showing a new-found fondness for mergers, but some experts doubt whether the shift will mean many more corporate marriages with foreign firms.

Merger mania might be too strong a phrase, but Japanese companies are joining forces in growing numbers as they seek to boost global and domestic competitiveness.

On Monday, Showa Shell Sekiyu KK said it was considering merging its oil-refining and distribution divisions with those of Mitsubishi Oil Co Ltd to help survive an impending industry shake-out.

Last month, troubled video-game giant Sega Enterprises Ltd and toy-maker Bandai Co Ltd agreed to form a

new company to cope with tough competition.

 

Mergers and acquisition (M&A) cases involving Japanese firms have been rising for the past three years, growing 12 per cent to 614 cases last year, industry statistics show. That figure was the highest since 1991, although still a small fraction of similar activity in both Europe and the United States.

Many Japanese firms which bought or took stakes in foreign firms during the heady days of easy credit and a strong yen in the late 1980s are now selling off those overseas units, while others are dissolving joint ventures with foreign partners.

The M&A mini-boom also reflects large corporations efforts to refocus on core business by getting rid of fringe divisions.

Japan in the late 1990s is doing exactly what America did in the early 1990s moving from multi-layered corporations toward focused, single-profit-centre operations, said Jesper Koll, chief economist at JP Morgan in Tokyo.

Many mergers also stem from efforts by firms in once-protected sectors to achieve economies of scale and cope with an increasingly deregulated environment, experts said.

The value of foreign M&A activity in Japan, meanwhile, quadrupled in 1996 to 304 billion yen ($2.45 billion), not because of more deals but due to a dramatic rise in the average amounts involved, according to a report by KPMG Corporate Finance.

Among those big deals was Ford Motor Cos more than 52 billion yen ($419 million) purchase of an extra chunk of Mazda Motor Corp, which boosted its stake to one-third and gave the US automaker effective management control.

Some experts expect to see more high-profile deals with foreign firms this year.

I think this year we will see a lot more high-profile deals, said Colin Stuart, a director at KPMG Corporate Finance in Tokyo. And I think that will help drive other deals, as medium-sized companies see bigger ones selling out to foreigners, it will become acceptable.

Others, however, question whether the investment environment and corporate attitudes have really changed enough to open the door to a flood of foreign mergers.

Big Japanese companies are combining with each other to become more competitive internally. Allowing foreign firms into the mix doesnt really come into it, said Robert Grondine, a partner in the Tokyo office of law firm White and Case. Many Japanese executives remain allergic to foreign takeovers.