Deals

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

While much attention has been focused on Japan's big ailing companies and their prospects for survival, a few small developments show some promising signs for the country's future.

Kicking off a week in deals, Asahi Glass Co. said on Dec. 20 it would buy CMC Biologics for 60 billion yen ($512 million), helping its move into contract drug manufacturing.

While Asahi Glass gets half its sales from glass used in buildings and cars, the electronics sector provides over 40 percent of its operating profit. Yet even that division is overshadowed by the chemicals business, which includes solvents, pharmaceutical ingredients and resins, and which has grown to account for 43 percent of earnings.

Profit Center
Asahi Glass's electronics and display materials division commands better margins than its other units
Source: Bloomberg
Note: Excludes others and adjustments,

Life sciences are Asahi Glass's new favorite child, providing the Japanese company with a strategy to balance the ebbs and flows of the semiconductor and display industries for which it's a major supplier. The acquisition should also give Asahi Glass a leg up in next-generation biotech, where skills in chemical engineering, electronics and biologics will be crucial to technological development.

A day later, TDK Corp. did amazing things for its shareholders by announcing it would acquire San Jose, California-based InvenSense Inc. for $1.3 billion, adding motion sensors and gyroscopes to its catalog. Like Asahi Glass, TDK wants to branch beyond its legacy businesses and into what's new and hip.

For a company that once relied on magnetic tapes and hard-disk drives, management sees its future in nascent arenas including automotive, wireless-power charging and healthcare devices. Tech geeks and some investment bankers will remember that MEMS (microelectrical mechanical systems) were once in vogue because they combine semiconductors with moving parts at a scale that makes even a microscope squint. The end of the MEMS bubble (exhibit A: InvenSense's declining sales) is forcing companies to swap what's cool for what's commercial, and a takeover by TDK may speed that along.

TDK may have timed its move perfectly, although I have reservations about the $1.3 billion price tag because, among other things, the purchase will eat into the Japanese company's cash pile and leave it little room to expand elsewhere. And since it just bought an unprofitable company, TDK will probably need to tap capital markets before too long.

Makes Sense
TDK's cash position will be impacted by its InvenSense acquisition
Source: Bloomberg
Note: 3Q2016 shows TDK cash, equivalents and short-term investments subtracting cash for the InvenSense deal plus the target's net debt.

Then comes Panasonic Corp., one of Japan's most iconic names. For 149.6 million euros ($156 million), it'll take a majority stake in Zetes Industries SA. Brussels-based Zetes has built a niche in electronic identity systems to track people and goods. Unfortunately the press release announcing the deal was vague and wishy-washy (trigger warning: the word "solutions" appears at least nine times), with Panasonic failing to clearly state its case.

That said, the deal fits the same mold as Asahi Glass and TDK. In each instance, the targets are somewhat tangential and oblique to the buyer's existing businesses. This is a good thing because for those companies to expand, they're going to need to reach beyond their core competencies while still leveraging their existing operations and knowledge base.

It's a savvy strategy, and precisely the type of calculated risk Japanese companies need to be taking if they're to avoid reliance on government bailouts and foreign saviors.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. CMC is a contract development and manufacturing organization (CDMO).

  2. A mandatory offer for the remaining shares will follow.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net