Company Crises Are Driving Japanese Dealmaking

Crisis Management Driving Japan M&A
  • Airbag maker Takata is in exploratory buyout talks with KKR
  • ‘Deals aimed at responding to crises have increased’

Japanese companies are targeting mergers and acquisitions abroad as the third-largest economy stagnates, yet it’s crisis management that’s driving deal volume in the country this year -- not international expansion.

Announced acquisitions involving Japanese firms as the target or asset seller in the first five months of 2016 rose 62 percent to $55.4 billion, compared to the same period last year, according to data compiled by Bloomberg. The volume is its highest in about a decade, the data show, as several of the nation’s bigger companies, including Toshiba Corp. and Mitsubishi Motors Corp., are seeking to raise capital to help cope with corporate crises.

Toshiba, confronting a scandal over inflated earnings, sold its medical device unit to Canon Inc. for 665.5 billion yen ($6 billion) in March. Mitsubishi Motors earlier this month agreed to sell a 34 percent stake to Nissan Motor Co. for about 237.4 billion yen. The capital infusion could be a crucial lifeline to the maker of Montero SUVs, whose market value is down more than 30 percent since it disclosed on April 20 that it overstated the fuel economy of its minicars and had been improperly testing some models since 1991.

“Deals aimed at responding to crises have increased dramatically in Japan,” Toshiyuki Mitsuzawa, Tokyo-based head of cross-border mergers and acquisitions at Frontier Management Inc., said by phone. “We could see more crisis-management-type deals in months ahead, particularly in the industries facing severe global competition such as electronics and automobiles.”

Takata Corp. faces potentially billions of dollars in costs related to its defective air bags and has started negotiations with possible investors including KKR & Co., a person familiar with the matter said earlier. At the same time, Toshiba’s plans to continue to revamp its business after the scandal may lead it to divest another unit, according to people with knowledge of the matter, who asked not to be identified as the information is private.

The company, which booked a record loss of 460 billion yen for the year ended March, has also agreed to sell its home-appliance division to China-based Midea Group Co.

“Toshiba was a big contributor that bolstered Japanese deals this year so far,” Chihiro Ohta, senior strategist at SMBC Nikko Securities Inc., said by phone. “Japanese electronics makers have held off too long on making their own decisive restructuring efforts in the past years, even though they lost their competitiveness in a global race.”

Toshiba, which makes everything from computers to nuclear-power equipment, has no plans to sell additional businesses for now, Kaori Hiraki, a Tokyo-based spokeswoman, said by phone. Masashi Muromachi, the company’s president who’s set to resign in June, said earlier that the firm is seeking to make all business units profitable this fiscal year.

Seeking Acquisitions

This year, unlike last year, the volume of acquisitions involving a Japanese company as a seller or a target far exceeded the volume of those deals where a Japanese firm was an acquirer, Bloomberg-compiled data show. In the first five months of this year, about 74 percent of all Japanese deals, including Foxconn Technology Group’s plans to buy control of Sharp Corp., have a company from the country as seller or target, the data show.

Japanese companies are still seeking acquisitions abroad. Beverage maker Asahi Group Holdings Ltd. offered in April to buy the Peroni, Grolsch and Meantime beer brands for 2.55 billion euros ($2.84 billion) from Anheuser-Busch InBev NV. The purchase would allow Asahi to expand in Europe to counter slowing demand growth at home. Japan Tobacco Inc., the seller of Camel and Winston cigarettes outside the U.S., bid $510 million in May to acquire 40 percent of Ethiopia’s National Tobacco Enterprise.

“A combination of offensive and defensive M&As is vital” for the long-term health of Japanese companies, Yasuhide Yajima, chief economist at NLI Research Institute in Tokyo, said by phone. “They should swiftly divest non-core businesses on one hand, and on the other clinch deals including capital alliances and joint ventures with big Asian players to grab larger shares in the region and the global market for their core products and services.”

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