TT-484 -- Rising Tide of International M&As, ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, September 8, 2008 Issue No. 484


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- News
- Candidate roundup/Vacancies
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As the yen once again firms against the US dollar, foreign
investors are once again coming to the realization that
Japan has already been through its major financial
correction (starting 16 years ago), and that what hasn't
gone up doesn't have so far to fall. Money is flooding in
to government securities as a safe haven, and although the
Nikkei stocks are still following the overseas markets
downwards, the losses are smaller compared to other Asian

At the same time, Japanese banks are in relatively good
shape compared to their foreign counterparts, and this
means they have money to lend. Japanese manufacturers and
exporters are taking advantage of the relatively calm
conditions back home compared to the roiled markets
overseas and are shopping around the world, but primarily
in developed counties, to do tie-ups and buy-ups.

We've been predicting a strong pick-up in Japanese-led M&As
for a while now, and the volume of deals over the last two
months proves that we are now in the midst of a major
trend. As we have been saying, there are literally hundreds
of listed companies who are also exporters, that have
socked away cash for 4-5 years and now have a billion or
two (dollars) to spend on foreign growth by acquisition.
The Nikkei reckons that Japanese firms are sitting on
around JPY60trn (US$545bn) in surplus cash and that's no
chicken feed.

[Continued below...]

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[...Article continues]

Most of this excess cash has been earned from the Japan ->
China -> US/Asia export boom that ran from from 2003
through 'til last year. Initially the cash went into
getting debt levels down, then into building or
modernizing manufacturing plants, sprucing up R&D (many
listed firms are spending up to 5% of sales on R&D), and
now on M&A war-chests. Employees are getting very little
of the cash, unless they happen to be scientists.

At the same time, the general pessimism pervading the
international markets, and the struggle by overseas
consumer-products companies in particular to deal with the
downturn, means that there are plenty of targets out there.
In a way, many of the deals are starting to look like a
game of chess. This was well demonstrated in the
announcement by Ricoh that it would acquire major U.S. Office
Automation company Ikon. In making the acquisition, not
only does Ricoh get to gain control over its biggest U.S.
distributor, but it also lops off one of competitor Canon's
major reseller networks (40% of their sales go through
Ikon) as well.

The slew of M&As in progress and announcements of those
pending over the last couple of months is really quite
impressive. Among the bigger ones were pharmaceutical firm
Sankyo's JPY500bn (US$4.7bn) acquisition of India's Ranbaxy
Labs in August (announced in June), TDK's JPY200bn takeover
of German electronic parts firm Epcos in July, Tokyo
Marine's JPY500bn July announcement to take over
Philadelphia Consolidated Holding -- the largest financial
market cross-border deal by a Japanese firm, and Sony's
pending US$900m takeover of Bertelsmann's stake in Sony BMG
Music Entertainment.

Then in only the first 7 days of September, we have already
had M&A announcements almost daily, including Pharmaceutical
firm Shionogi's planned JPY147bn takeover of US-based
Sciele Pharma, apparel firm Onward's JPY26.4bn takeover of
the German Jil Sander fashion brand, and OA maker Ricoh's
JPY170bn takeover of Ikon. Further down the food chain,
smaller deals are also picking up pace.

As well, there are those companies which haven't acted yet,
but are pronouncing quite massive M&A funds for the coming
12 months. Kirin for example, has said that it has
allocated JPY300bn (US$2.8bn) for M&A, NEC says it has set
aside JPY500bn (US$4.7bn), and plastics firm Kuraray says
it has JPY200bn (US$1.9bn) allocated. Indeed, the Nikkei
says that about 40% of listed firms have surplus cash and
we calculate this to mean about 1,400 firms.

A typical smart smaller acquisition is one made this week
by commercial refrigeration maker Hoshizaki. This fairly
conservative company has decided to buy a Danish competitor
called Gram Commercial A/S for JPY8.6bn (US$81m). Like its
counterparts, Hoshizaki is paying a fairly rich price --
around 125% of sales, or, our guess, around 6 times pre-tax
profits. Hoshizaki is trying to aggressively expand its
international business because sales of commercial freezers
and refrigerators have pretty much stagnated in Japan.
Prior to the Gram acquisition, 23.8% of sales came from
overseas, and post-purchase through to 2012, that number
will jump to 34%.

There is no data on where Hoshizaki is getting the money
from, but in keeping with the general trend it was probably
good old fashioned bank debt, and so they are probably
paying 1.5%~1.8% interest on it. This makes the deal
economics hold up pretty well, in that to get an extra
JPY1.4bn or so of annual pretax profit, they are paying
just JPY130m or so of interest charges. Of course there's
always the chance that things could go "south" on them, in
that Gram may have hidden problems. But for the time being
anyway, this deal should have a very beneficial effect on
Hoshizaki's IPO slated later this year here in Japan.

What does all this activity means for the rest of us? Well,
certainly if the target firm is a correct fit and has
either a compelling sales or IP story, then now would be
a good time for foreign sellers to start reaching out to
Japan. Making contact can be as straightforward as
contacting the Business Development or M&A team in the
desired acquirer, although a board-level introduction
is typically a lot more productive. Having said this, the
caveat is that most of these acquisitions have come after
the two companies involved have been doing business for a
while and have come to trust each other. So a better first
step for foreign firms is to do a business tie-up first.

Since there are also many readers in the professional
services sector, clearly these deals need a substantial
amount of work to put together. This represents opportunity
for deal origination consultants, M&A bankers (of course),
translators, lawyers, patent and trademark attorneys,
recruiters, private detectives, realtors, PR and IR
specialists, labor law specialists, training companies, and
many others besides. If you're in one of these industries,
your firm should be watching the newspapers and making
sales approaches.

...The information janitors/


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+++ NEWS

- Tainted rice from China
- Occupational hazard for monks
- Economy shrank 4% in Q1
- Some pork for farmers
- NEC allocates JPY500bn for foreign investments and M&A

-> Tainted rice from China

Once again food security and sourcing unfit product from
China has come to light. This time, mochi maker Mikasa
Foods of Osaka was found to have imported 295 tonnes of
rice originally intended for industrial use (for what, we
wonder?) in 2006 and 2007, but instead used it to produce
mochi and senbei crackers. The tainted rice apparently had
over five times the permitted level of pesticide
methamidophos present. (Source: TT commentary from, Sept 6, 2008)

-> Occupational hazard for monks

In an unfortunate incident worthy of an aesop's fable, a
monk in Niigata trying to smoke hornets out of his temple
building dropped his burning torch after the enraged
insects turned on him. The temple caught light and
subsequently burned to the ground. The monk avoided getting
stung, but suffered some facial burns instead. (Source: TT
commentary from, Sept 8, 2008)

-> Economy shrank 4% in Q1

Finance Ministry figures show that capital spending by
companies fell 6.1% in the period April through June this
year, and financial experts are saying that it is likely
that the nation's real GDP probably shrank somewhere
between 2.6% and 4.5%. If they are correct, and we'll find
out when the Cabinet Office issues its figures this week,
then this is the biggest economic contraction since Q2 of
2001. (Source: TT commentary from, Sept 6, 2008)

-> Some pork for farmers

While most of the upcoming stimulus package consists of
loans and guarantees for small to medium-sized companies,
there is none-the-less a smidgen of pork grease for the
LDP's most favored voter bloc, the farmers. The government
appears ready to offer around JPY285bn (US$2.7bn) in
subsidies to help off-set the costs of fuel and
fertilizer, and to restore land damaged in the most recent
spate of storms. The Agriculture Ministry also plans to
allow farmers to privately lease and sell property to try
to make the sector more efficient. Realtors will for the
first time be allowed to broker such transactions, instead
of channeling them through the old-boy network of
agricultural cooperatives. (Source: TT commentary from, Sep 4, 2008)

-> NEC allocates JPY500bn for foreign investments and M&A

Despite having only this year returned to profit, after 3
years of red ink, NEC has decided to join the ranks of
Japanese firms expanding their overseas operations by
allocating around JPY500bn for primarily foreign
investments and M&A. The company says that it wants to
increase its international sales from 25% last year to 30%.
Apparently the investment emphasis will be
telecommunications and software development. (Source: TT
commentary from, Sept 6, 2008)

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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One of the international community's most anticipated
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In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to

READER: In TT483, I read your email newsletter about the
government loan program for SMEs in Japan. I have
researched in Japanese and English but haven't been able to
find any information. Can you please tell me the specific
name of the program you were referring to, as well as any
URLs if available?

*** Our response: This is not a program you can ask for by
name. It's intrinsic to the system. If you apply through
the usual channels and you should find the process
generally easier than it was a few weeks ago. As a case in
point, our company just asked for a rather large sum that we
normally wouldn't get, and we were offered the entire
amount at an interest rate of just 1.86%. This happened on
Wednesday last week, after we ran the article.

The two places you should be going to for loans are:
1. Kokumin Seikatsu Kinyu Koko (National Life Finance
2. Your local bank -- preferrably one that you're already
doing business with

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