Nomura Holdings Inc. (8604) is losing its four-year grip on Japanese takeover advice after missing 2012’s biggest deal, raising questions about its ability to arrange financing for clients and the pace of its rebound from an insider-trading scandal.
Mizuho Financial Group Inc. (8411) overtook Nomura this month after winning a role advising and managing funding for Softbank Corp. (9984)’s record $20 billion bid for Sprint Nextel Corp. Mizuho has worked on Japanese mergers and acquisitions announced this year valued at $77 billion, while Nomura advised on deals worth $52 billion, according to data compiled by Bloomberg.
Nomura’s waning M&A status is a setback for Chief Executive Officer Koji Nagai, who took over on Aug. 1 following revelations that employees tipped off traders about clients’ plans, prompting his predecessor to resign. It also reflects the disadvantage Japan’s biggest brokerage has compared with banks that can marry loans with mergers advice at a time when domestic companies are spending a record amount on takeovers abroad.
“Compliance matters when clients look for an adviser, especially on cross-border deals, as the U.S. and Europe are very strict about it,” said Koji Hirai, head of M&A advisory boutique firm Kachitas Corp. “The financial adviser’s lending power is also becoming more crucial in the selection process.”
Softbank hired Deutsche Bank AG (DBK) and Raine Group LLC for its takeover of Overland Park, Kansas-based Sprint in the largest overseas acquisition announced by a Japanese firm in at least 12 years. Mizuho is also advising Tokyo-based Softbank on its plans to buy domestic rival eAccess Ltd. for 180 billion yen ($2.2 billion). Nomura is absent from that transaction as well.
Keiko Sugai, a spokeswoman for Nomura in Tokyo, declined to comment on the company’s M&A advisory performance.
For Softbank CEO Masayoshi Son, the Sprint transaction is a “once-in-a-lifetime deal,” said Tokyo-based Hirai, a former M&A head at a brokerage unit of Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender.
Nomura has worked for Softbank before, managing the mobile- phone carrier’s 1994 initial public offering and additional share sales until 2003, data compiled by Bloomberg show.
“As a standard for selection, we offered the mandates to companies that have a steady performance and track record on a long-term basis,” Makiko Ariyama, a Tokyo-based spokeswoman for Softbank, said by phone, declining to comment on specific firms.
Nomura also lost market share managing bond and equity sales in the quarter ended September from the previous three months, the data show.
Shares of Nomura fell 1.4 percent to 285 yen in Tokyo today. They have lost 0.7 percent in the past 12 months, compared with the Nikkei 225 Stock Average (NKY)’s 2.1 percent gain.
The securities firm acknowledged in June that employees leaked information on equity offerings it managed in 2010. Nagai said on Sept. 6 that the breaches cost it mandates including the government’s plan to sell Japan Tobacco Inc. (2914) shares and a lead role managing Japan Airlines Co.’s $8.4 billion IPO.
That may have hampered a profit recovery last quarter. Nomura probably had net income of 5 billion yen for the three months ended Sept. 30, compared with a loss of 46.1 billion yen a year earlier, according to the average estimate of nine analysts surveyed by Bloomberg News. The Tokyo-based firm is scheduled to report earnings on Oct. 29.
“Investment banking business fell in the second quarter because of the insider-trading scandal related to public share offerings,” Tatsuo Majima, an analyst at Tokai Tokyo Financial Holdings Inc., wrote in a report dated Oct. 23. Nomura lost lead management roles in October as well, so “it’s hard to say that the impact of the scandal is fading,” he said.
The Japan Securities Dealers Association this month fined Nomura 300 million yen, the biggest penalty it has imposed against any firm in 12 years, saying its brokerage unit lacked internal controls to safeguard information.
Nagai, 53, has vowed to regain public trust by implementing improvements ordered by the Financial Services Agency. He is also cutting $1 billion of costs and scaling back abroad, just as Japanese companies look overseas for growth.
The bank’s global retrenchment may make it less attractive to potential clients seeking advice on how to expand beyond Japan, according to Yuri Yoshida, a credit analyst at Standard & Poor’s in Tokyo. “Japanese financial firms have to follow their clients by going abroad as the home market is stagnating.”
Nomura is cutting as many as 30 jobs in part of its Americas equities division, according to people briefed on the plan in September. It is eliminating about 100 investment banking positions in Europe as part of a 30 percent reduction in its workforce in the region, three people with knowledge of the plans said last month.
Companies in Japan have announced overseas acquisitions valued at $97 billion this year, the most since Bloomberg began compiling data in 2000, spurred by a stronger yen, an economic slowdown and a shrinking population.
Nomura ranks eighth in advising on overseas acquisitions by Japanese companies this year, down from third for all of 2011, the data show. Mizuho holds the top position. Globally, Nomura is 12th, up one spot from the end of last year.
Mizuho, Japan’s third-biggest bank by market value, is set to end the year as the country’s top takeover adviser for the first time since 2001. The Tokyo-based bank’s revival reflects its focus on M&A business throughout the entire organization, said Executive Officer Shinya Hanamura.
The corporate lending unit has been working closely with the investment banking subsidiary “with special care placed on compliance,” said Hanamura, 53, who heads the advisory group at Mizuho Securities Co. “We think this is bearing fruit.”
Softbank also hired Sumitomo Mitsui Banking Corp., Bank of Tokyo-Mitsubishi UFJ Ltd. and Deutsche Bank’s Tokyo branch as the lead arrangers for financing the Sprint deal.
Founder Son, 55, may represent a new generation of Japanese leaders. The billionaire, who became the nation’s second-richest man with bets that included buying Vodafone Group Plc’s local business in 2006, laid out a Darwinian vision for business in 2010, forecasting that 99.98 percent of companies would cease to exist in their current form over the next 30 years.
Such an attitude explains why historical ties between companies and brokerages, once important in Japan, may count for less these days.
“Entrepreneurs like Son and newly established IT companies aren’t necessarily sticking to those relationships,” said S&P’s Yoshida.
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