Japan Inc. Poised for Record Outbound M&A Year With Softbank Bid

Softbank Said to Have Deal to Buy 70% of Sprint, CNBC Says
Japan’s Softbank Corp. will buy a 70 percent stake in Sprint Nextel Corp. for $20 billion, CNBC reported, citing unidentified people familiar with the transaction.Photographer: Kiyoshi Ota/Bloomberg

Softbank Corp.’s bid for control of Sprint Nextel Corp. is adding to evidence that Japan Inc.’s overseas buying spree isn’t about to abate.

Softbank, Japan’s third-largest wireless carrier, agreed to pay $20.1 billion to acquire about a 70 percent stake in Sprint, according to a statement issued in Tokyo today. That would make it the country’s biggest outbound acquisition on record.

The Sprint deal brings takeovers abroad close to the record $88 billion Japanese companies notched last year, showing how a strong yen and weak domestic demand are combining to stoke acquisitions. Rakuten Inc. and Kirin Holdings Co. are among companies turning to deals in faster-growing markets as they confront deflation and an aging population at home.

“The trend is likely to continue, especially without the government taking steps to resolve the aging population, and with the yen looking like it won’t weaken anytime soon,” said Naoki Fujiwara, who helps oversee $6.7 billion at Shinkin Asset Management Co. in Tokyo. “It leaves companies no choice but to look for growth overseas.”

Companies in Asia’s second-largest economy have announced $63.4 billion of acquisitions abroad in 2012, data compiled by Bloomberg show. The biggest deal this year before today was Marubeni Corp.’s takeover of Gavilon Group LLC, valued at $5.6 billion including assumed debt.

Topping Gallaher

At $20 billion, a deal by Softbank for the third-biggest U.S. wireless carrier would exceed Japan Tobacco Inc.’s $19.02 billion acquisition of the U.K.’s Gallaher Group Ltd. in 2007. The deal involves the purchase of $12.1 billion of Sprint shares from other holders and $8 billion of new capital Softbank said.

Softbank President Masayoshi Son said the purchase will make his company the world’s third-largest wireless carrier by revenue.

Rakuten, Japan’s biggest Internet retailer, plans to expand in India and Australia amid the outlook for slowing domestic economic growth, Chief Executive Officer Hiroshi Mikitani said in an interview last week. Rakuten aims to have 70 percent of sales transactions overseas by as early as 2020, said Mikitani, 47, Japan’s third-richest man.

The retailer, which in the past three years announced more than $1.6 billion worth of purchases, had $10 billion in cash and short-term investments as of June 30, about double the amount for U.S. rival Amazon.com Inc., according to data compiled by Bloomberg.

Yen Strength

Supporting Japanese companies’ growth ambitions, the yen has appreciated 3.7 percent over the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

“The strength of their currency is probably one of the biggest factors driving their ability and desire to do these outbound deals,” said Jon Parker, a partner in transaction services at KPMG LLP in Hong Kong. “For Japan it ends up being more general and opportunistic.”

Two decades of economic malaise and on-off deflation add to the urgency. The Bank of Japan downgraded its assessment of Japan’s economy for a second month on Oct. 5, saying “economic activity is leveling off.”

“Japan’s economy is suffering from very limited growth so exporting capital is a form of growth for them,” said Lawrence Chia, the Beijing-based Asia-Pacific head of financial advisory services at Deloitte Touche Tohmatsu. “What has driven that surge is the yen.”

Chinese Acquisitions

The economic woes mean Japanese companies have greater need for acquisitions than Chinese firms, which are mainly seeking targets in resources and energy, said Deloitte’s Chia. China in 2010 overtook Japan to become Asia’s largest economy.

Chinese companies have announced $61 billion of overseas acquisitions so far in 2012, data compiled by Bloomberg show, putting them just behind the pace of their Japanese peers. Cnooc Ltd.’s $15.1 billion takeover of Nexen Inc., announced in July, would be the nation’s largest deal abroad if successful, according to the data.

Fast Retailing Co., the owner of the Uniqlo clothing brand, on Oct. 12 forecast annual profit that missed analysts’ estimates. The retailer is expanding overseas to counter lower-than-expected domestic demand and plans to open 1,000 outlets in North America and Europe by 2020.

Japanese retailers and beverage companies will continue to make acquisitions overseas, said Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd. in Tokyo. Kirin, Japan’s largest brewer by market value, agreed to buy out shareholders in Brazil’s Schincariol Participacoes e Representacoes in November 2011, valuing the brewer at about $3.6 billion excluding debt.

“For a lot of them that ruled the roost at home, there are huge scale merits for moving overseas and selling the same stuff,” Smith said.

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