TT-499 -- Year-end Round Up of M&As, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, December 21, 2008 Issue No. 499


- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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As we have done in previous years, we thought it would be
interesting to look back on 2008. This year was
punctuated by a series of major M&A actions that picked up
from the 2007 boom. Here at Terrie's Take we are calling
the 2008 M&A surge the "Overhang Boom" -- meaning that
this was a time when foreign markets were starting to
contract on bad news already, but the Japanese still had
confidence in their recent recovery and still had cash in
the bank.

Now in December, they still do have cash, but since most
companies are expecting their cash buffer to get sucked up
in the maelstrom of the current global recession, it is
likely that M&As are off the table for at least another
quarter. After the global stock markets settle down again,
the spare cash will come out again.

Just for a little bit of side interest, we've also thrown
in a couple of other key events that affected us as
business people this year.


The first big deal came in January, when drug maker Eisai
Co., bought out MGI Pharma of the U.S. for more than
JPY400bn (US$4.44bn). Eisai said that the purchase was made
to increase overall group earnings to JPY1.5trn by 2016,
about 30% more than its projected 2011 turnover. However,
shareholders weren't buying it and the stock subsequently
tumbled 26% by the time the deal was consummated. Perhaps
more importantly, Eisai had to incur a significant amount
of debt to make the purchase -- something it must now be

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The Japanese drug companies, realizing that they had a
window of opportunity, seemed to spur each other on. After
the Eisai foray, competitor Takeda bought out Millenium
Pharmaceuticals, also of the U.S., for an astonishing
US$8.8bn all-cash buy-out which represented a generous 53%
premium. Analysts said that the premium was too high,
especially given that Novartis had just recently purchased
Switzerland's Alcon for just a 13% premium, however, since
Takeda had a war chest of US$10bn at the time, we believe
this acquisition was something it could afford.

Also in April, Takeda purchased the Japanese operations of
Amgen from its U.S. parent, for JPY90bn (US$1bn). We
suppose this leaves Takeda with just JPY90bn left for other
purchases through to March 2009. Luckily, you can buy a lot
more now than 9 months ago.


June was a busy month. First there was another nail in the
coffin of temporary worker dispatch company Goodwill, when
managers of the company were arrested for illegally
subcontracting temp workers to Towa Lease who then in turn
subcontracted onwards to a third company. Over the
following months, the temp company was closed down and
Goodwill Group lost another of its major businesses. It has
been interesting to watch the deconstruction of this
JPY100bn once-boisterous company.

Founder and ex-chairman Masahiro Origuchi was no where
to be seen and as a result of both this incident and the
original 2007 arrests over its nursing home operations, it
looks like the government will ban dispatch companies from
supplying workers on one-day contracts. This sounds like
progress to labor activists, but in fact, it is causing
hardship to otherwise marginally employable people -- we
think the government will have to reconsider its stance on
daily dispatched workers.

Back to M&A's, drugs company Daiichi Sankyo decided that it
couldn't let its competitors Eisai and Takeda grow through
acquisitions without doing one of its own. SO-o-o-o,
Daiichi bought out India's generic drugs giant, Ranbaxy
Laboratories for JPY488.7bn (US$5.43bn), at a 31% premium.
At the time of the deal, Daiichi said that it expected a
significant increase in sales and profit, especially since
the company did not have a presence in the booming generic
drugs market.

Unfortunately for Daiichi, the reality was that by the end
of the year its stock valuation losses on Ranbaxy shares
have led the company to potentially have to report a Net
Loss for the first time since it was created through merger
in 2005. Ranbaxy shares now sell for just 30% of the
acquisition price...!


In July, it was the turn of another major cashed-up industry
sector, the insurance companies, to flex their muscles.
Tokio Marine Holdings announced that it would buy U.S.
insurer Philadelphia Consolidated for US$4.7bn (then around
JPY500bn). This deal was the largest acquisition of a
foreign financial firm by a Japanese one. Tokio Marine paid
a generous 66.5% premium on Philadelphia Consolidated's
average share price for last year. Tokio Marine has now
built up a sizable overseas presence, including its
purchase of British insurer Kiln in December 2007.


The media ran a number of stories about farmers of Japan's
much-loved out-of-season musk melons, traditionally given
as expensive year-end gifts, being forced to shut down
operations because of the high cost of heating oil.
Apparently as many as 20% of farmers were forced out of the
business in Q1 due to oil prices jumping 55% from the year
before and the situation resulted in a full 42% of the
average melon's cost coming from the cost of heating oil.
But here we are at the end of the year, and oil has dropped
from US$140/barrel to US$36/barrel. So we assume that musk
melons will be back in January.

Oil was of course the bane of many agricultural and
fisheries firms, and in July the fishing industry held a
one-day strike to urge the government to do something about
the high price of fuel oil for its fishing fleets. However,
given that Japan imports more than 50% of its food and
particularly fish products from overseas, the strike had
little impact on supplies.


Not to be left out of the bargain bonanza of the Overhang
Boom, Japan's largest finance house, Nomura, announced that
it was buying Lehman Brother's asian operations, as well as
other parts of the Lehman empire in Europe. Although the
assets were reportedly picked up for just US$225m, the main
focus for Nomura was the high-powered front office teams
who generated most of Lehman's earnings. The idea was for
these heavy hitters to help take the company to a new level
as an international player. Unfortunately, someone forgot
to impart the Nomura vision to the Lehman folks, and rumors
are that less than a third of them moved across to Nomura.
Meantime the Japanese firm is stuck with almost 8,000 back
office staff it mostly doesn't need, and as a result, it
has started firing its own employees to try to bring costs

Also in September, Japan got a new prime minister, Taro
Aso. While we wouldn't necessarily consider the election of
a new prime minister in Japan as being particularly
newsworthy -- we've had an average of one a year for the
last three years -- Aso is probably a man for the times. By
this we mean that he is well known for his desire to get
back to pork barrel spending, and to revitalize the economy
by boosting industrial/commercial output rather than
reducing government spending and being more fiscally
conservative. Given the lead provided by the U.S.
government of socializing its banks and auto firms with
huge tax-payer bail-outs, we imagine that Japan will not be
far behind. ...Unfortunately.


So there you have it. This is the last Terrie's Take for
2008. We'll be taking our usual 2 weeks off and will be
back on January 11th. We wish all our readers a Merry
Christmas and Happy New Year. Oh, and if you have cash in
the bank, we'd suggest considering changing your US
dollars and Japanese yen for some other currency --
preferably of a country that can feed itself it things
get really bad.

...The information janitors/


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+++ NEWS

- Cheap Jetstar flights between Toyko and Cairns
- Temp workers face bleak future
- City louts to become farmers?
- Nippon Oil to up LNG stake
- FX losses get university director fired

-> Cheap Jetstar flights between Toyko and Cairns

Qantas economy airline subsidiary Jetstar has announced
that it has received landing slots at Narita, enabling the
company to start its cut-price daily flights between Cairns
and Tokyo from December 18. Online bookings for the
JPY20,000 (US$222) January return airfare were heavy.
Jetstar will also be flying to the Gold Coast 5 days a
week. (Source: TT commentary from, Dec 19,

-> Temp workers face bleak future

A Nikkei editorial last week pointed out that things are
looking decidedly bleak for temp workers. According to the
Ministry of Labor, about 30,000 temporary employees will
lose their jobs by March of 2009, a number that we think is
decidedly optimistic (i.e., way too low). In contrast, the
Japan Manufacturing Outsourcing Association, which
represents temp agencies employing more than 280,000
workers reckons that up to 40% of their workforce will lose
their jobs. ***Ed: We find this second number to be most
realistic, and thus points to several hundred thousand
temps nationwide being thrown out of work in the next 3-4
months.** (Source: TT commentary from, Dec 19,

-> City louts to become farmers?

Although the government doesn't say where it will get them,
it none-the-less announced that it would be recruiting
several hundred youths to go out to the countryside and
work on farms, forests, and in fishing cooperatives. The
program is part of the government's plan to revitalize
rural communities, and is being funded through subsidies
earmarked previously. ***Ed: The biggest challenge will be
finding youths who are willing to do manual labor and live
a harsh rural life. Unless recruited in China or SE Asia,
our guess is that the recruitees will have to be those
given a choice of either remand school or rehabilitation
through rural work...! We're not sure how Japan's elderly
farmers will take to such rookie employees.** (Source: TT
commentary from, Dec 19, 2008)

-> Nippon Oil to up LNG stake

Although it only earned an additional 1.8%, Japan's biggest
oil refiner, Nippon Oil, spent US$800m on increasing its
stake in a major LNG field in Papua New Guinea from 3.54%
to 5.34%. The shares were purchased from Australia's AGL
Energy Ltd. As well as LNG rights, Nippon Oil also gets two
oilfields providing it with an additional output of 2,000
barrels per day (for a total of 8,000 barrels per day).
Nippon Oil has a war chest of JPY430bn (US$4.9bn) for
acquisitions and has stated that it wants to increase its
production to 170,000 barrels per day by March 2011, up
from 145,000 barrels currently. (Source: TT commentary from, Dec 18, 2008)

-> FX losses get university director fired

The Asahi newspaper reported from an anonymous source that
a director at the prestigious Komazawa University was fired
after he caused the university to invest in JPY15.4bn
($171m) of FX trades using currency swaps -- money which
was subsequently lost. The university's president and 3
others also tendered their resignations. Komazawa is one of
Japan's oldest universities, being established by monks in
1592. ***Ed: We're sure that this is only the tip of the
iceberg, and that FX and other speculative trading done by
NPOs, local authorities, etc., will be just as bad as the
exposure by U.S. local authorities and NPOs has been to
CDOs and Bernie Madoff.** (Source: TT commentary from, Dec 18, 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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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

*** In TT498 we discussed car sharing in Japan and how it is
likely to catch on.

I am puzzled by your enthusiasm about car sharing. Car
sharing sounds suspiciously like another bad idea:
timeshare condos. Better to do a straight rental in most
cases. The prices you quoted don't sound so different from
rentals, I can choose a different car depending on my mood,
and it only takes me a few minutes to book.

We're not sure that you can compare car sharing with condo
timeshares. One is for people for whom a car is a necessity
on a regular basis, the other is an escape that might only
happen a couple of times a year. We agree that there are
many impractical issues revolving around sharing a car, but
cost is not one of them. If a family needs a second car for
regular use -- such as taking the kids to piano or sports
practice, doing the shopping, or taking things out to a
mother-in-law at an old folks home, then car sharing is
eminently sensible.

We agree that rental cars are indeed an option for single
people who would otherwise use public transport or ride
bicycles, but such people are not typically the target for
car sharing firms. Instead, the target is moms who drive
20~50km a week and for whom the cost of a rental car would
quickly rise into the tens of thousands of yen per month
-- precisely why such people keep owning their own cars
rather than renting.

The other thing is that we introduced the car sharing
concept not to sing its praises, although we believe that
every car taken off the road represents both fiscal and
environmental commonsense, but to highlight the fact that
co-ops as a lifestyle choice are starting to catch on again.
By way of analogy, Japan has some very successful organic
vegetable co-ops, and to our way of thinking, car sharing
fits a similar concept. The food co-ops are not as
convenient as local supermarkets, but you do get noticeable
cost-savings and quality product from trusted producers.


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