Japan Inc. Gets Brexit Bargain on $23 Billion Outstanding Deals

  • Yen surge gives Japan’s companies more purchasing power abroad
  • NTT Data, Asahi behind biggest pending overseas acquisitions

Japanese companies, which have embarked on a $210 billion global acquisition spree over the past three years, are getting a surprise bargain out of Brexit.

The yen soared Friday to the highest in more than two years, boosting local firms’ purchasing power for deals abroad and potentially saving them hundreds of millions of dollars on purchases they’ve already announced. NTT Data Corp. and Asahi Group Holdings Ltd. are among Japanese companies with a combined $23 billion of overseas acquisitions agreed to in the past 12 months that are still pending, data compiled by Bloomberg show. 

The unexpected windfall could offer a small silver lining as export-driven corporate Japan braces for economic uncertainty, with the Topix index falling Friday by the most since 2011. Canon Inc., the world’s biggest camera maker, warned that British voters’ decision to leave the European Union could undermine the economic recovery in Japan, while automotive supplier Exedy Corp. said it may consider moving its office out of the U.K.

“It’s a bargain for those Japanese firms which have built cash in yen at home and have an acquisition deal in the works,” Makoto Shiono, a Tokyo-based partner at merger advisory firm Industrial Growth Platform Inc., said by phone Friday. “The cost of their deals clinched in U.S. dollars and euros has gotten lower.”

Peroni Beer

Japan’s currency jumped as much as 7.2 percent Friday, the most in more than three decades, and strengthened past 100 per dollar for the first time since 2013. It is now up 17 percent since the start of the year. The yen gained as much as 10 percent against the euro, the most intraday in more than seven years.

The biggest pending outbound deal from Japan is NTT Data’s $3.1 billion purchase of Dell Inc.’s technology services businesses, according to data compiled by Bloomberg. NTT Data, an arm of the former Japanese telephone monopoly, clinched the deal in March when the dollar was valued at about 113.45 yen. The Japanese currency climbed as far as 99.02 yen at one point in Tokyo trading Friday, shaving about 44 billion yen ($430 million) off the local-currency price tag for the deal.

Asahi, the brewer of Super Dry lager, agreed in April to buy Anheuser-Busch InBev NV’s Peroni, Grolsch and Meantime brands for 2.55 billion euros ($2.8 billion). The Japanese beermaker agreed to acquire the brands in February, when the euro was trading at about 128 yen. The Japanese currency strengthened Friday to as much as 109.57 yen to the euro, at that point making the deal about 47 billion yen cheaper for Asahi in local-currency terms.

To be sure, the yen could weaken in coming days if market jitters subside or the Bank of Japan intervenes in the currency market, which would erase some of the benefits for Japanese acquirers. The actual price of the purchases may not be affected if the companies pay for them with foreign currency they hold or borrow offshore to fund the deals.

Asahi said in an e-mailed statement it doesn’t expect the U.K. vote outcome to have an effect on its purchase of the European brands. The company will use external funds to pay for the acquisition, Asahi spokesman Takuo Soga said by phone, declining to comment further. NTT Data hasn’t decided how it will finance the acquisition from Dell, and it hasn’t set a target completion date, Nobuhiko Toda, a spokesman for the company, said by phone.

Risk Aversion

Including deals at home, cash-rich Japanese companies have been involved in $66 billion of acquisitions this year, according to data compiled by Bloomberg. While the yen’s strength gives companies greater firepower to make purchases abroad, Japanese companies may need to take more time to examine how Brexit would affect the business prospects of overseas companies they’re targeting, according to Toshiro Takeda, a Tokyo-based principal at M&A consulting firm Mercer Japan Ltd.

Uncertainty in Europe will erode Japanese companies’ appetite for business expansion in the region, and they may take a wait-and-see approach toward substantial investment, said Mari Iwashita, chief market economist at SMBC Friend Securities Co.

“If you are a brave investor, the U.K. is on sale right now,” Jacky Scanlan-Dyas, a corporate partner at Hogan Lovells in Tokyo, said by phone. “The pound is very low and interest rates are very low -- but in my experience Japanese corporates don’t invest for short-term profits, they invest for long-term relationships.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE