Morgan Stanley Leads Japan M&A for First Time Since 1997

Morgan Stanley is set to take the top spot in Japanese mergers and acquisitions for the first time in 16 years, a sign the U.S. firm’s three-year-old tie-up with Japan’s biggest bank is paying off.

Through its venture with Mitsubishi UFJ Financial Group Inc., Morgan Stanley advised on 41 takeovers this year, valued at $28.3 billion, data compiled by Bloomberg show. Goldman Sachs Group Inc. is second, followed by Bank of America Corp. Nomura Holdings Inc., which last year lost the No. 1 position for the first time since 2007, is fourth.

Morgan Stanley and Mitsubishi UFJ, which bought a $9 billion stake in the Wall Street firm in 2008 and is its biggest shareholder, are beating Nomura to business advising clients on deals abroad as Japanese companies look overseas for growth. Their partnership is bearing fruit at a time when the economy and stock market are recovering amid Prime Minister Shinzo Abe’s efforts to stimulate growth.

“They’re successfully sharing roles in Japan and overseas not only for M&A advice but also public offerings,” said Makoto Kikuchi, Tokyo-based chief executive officer at Myojo Asset Management Japan Co. “They’re demonstrating their strength in a positive market environment.”

Among managers of Japan equity offerings, Morgan Stanley and Mitsubishi UFJ are ranked third this year, the same position they held in 2012 and up from fifth in 2011, the data show.

Secure Bridgehead

Mitsubishi UFJ Morgan Stanley Securities Co. was involved in the five biggest Japanese takeovers for the year, including Tokyo Electron Ltd.’s $6.8 billion merger with Santa Clara, California-based Applied Materials Inc., the data show. The firm leads the ranks for cross-border deals, which at $57.5 billion make up more than half the value of total transactions.

“Japanese companies continue to make acquisitions abroad to secure a bridgehead or boost market share,” Haruo Nakamura, deputy president and chief executive officer for investment banking at Mitsubishi UFJ Morgan Stanley, said in an interview in Tokyo. “They have ample cash and strong balance sheets, and large acquisitions will increase.”

Tokyo Electron hired the company “mainly because the firm has a track record on overseas deals,” the Tokyo-based chipmaking-equipment manufacturer said in an e-mailed statement.

Clients choose Morgan Stanley and Mitsubishi UFJ because their combination of global expertise and strong relationships with Japanese companies provides “a sense of reassurance,” said Nakamura, 50, who joined the New York-based firm in 1987. Morgan Stanley is second in global mergers advisory rankings this year, trailing only Goldman Sachs, Bloomberg data show.

Most Profitable

Mergers involving Japanese companies have fallen from last year, when a stronger yen made overseas transactions cheaper and mobile carrier SoftBank Corp. bought Sprint Corp. for $39.7 billion, the country’s biggest deal since 1999, according to the data. Japanese companies were involved in 2,047 takeovers valued at $102.9 billion so far this year, down from 2,476 totaling $204.3 billion for all of 2012. Last year’s amount was the highest in at least 11 years.

Mitsubishi UFJ invested in Morgan Stanley at the height of the global financial crisis in October 2008 as the U.S. firm’s stock price tumbled. It now holds a 22 percent stake. In May 2010, the banks formed Mitsubishi UFJ Morgan Stanley and another joint venture, Morgan Stanley MUFG Securities Co., which focuses on bond and equity underwriting, as well as sales and trading.

Net income at Mitsubishi UFJ Morgan Stanley more than doubled from a year earlier to 34.6 billion yen ($339 million) in the three months ended Sept. 30, driven by fee income and trading profit. The firm pipped Nomura’s securities unit as the most profitable brokerage in Japan for the period. Nomura Securities Co. reported profit of 34.5 billion yen.

Best Performer

Japan’s Nikkei 225 Stock Average surged 51 percent this year, the best performance in the developed world, spurred by Prime Minister Abe’s fiscal spending and unprecedented monetary easing by the central bank. The gauge fell 0.4 percent at the close in Tokyo, a day after reaching the highest level since December 2007. The economy has expanded for four quarters.

JPMorgan Chase & Co. ended Nomura’s four-year run as the No. 1 adviser on Japanese mergers in 2012, according to the data. For cross-border deals, Japan’s biggest brokerage is ranked 12th this year, down from 11th in 2012 and third in 2011.

Nomura, which led the initial public offering of Tokyo Electron in 1980, didn’t advise the manufacturer on the Applied Materials transaction.

Nomura’s Pipeline

“Japanese companies are increasingly looking abroad for growth and to meet their needs we have continued to strengthen our global team,” Kenji Yamashita, a spokesman for Nomura in Tokyo, said without commenting on adviser ranks. “Our pipeline of deals has grown steadily over the past couple of months.”

Nomura has been trimming staff abroad as part of a program to cut $1 billion in costs that mounted after it bought Lehman Brothers Holdings Inc. operations during the 2008 crisis. To give domestic employees more global experience, the Tokyo-based firm plans to send as many as 30 junior bankers to study abroad annually, Chief Executive Officer Koji Nagai wrote in a memo obtained by Bloomberg News in September.

Nomura remains the top manager of share sales in Japan, a position it has held since 2002, and is also the No. 1 bond underwriter, data compiled by Bloomberg show. Morgan Stanley is ranked second in debt underwriting this year, the same as 2012.

The joint venture will keep strengthening its investment banking business in Japan by hiring people as opportunities arise and increasing headcount, Nakamura said, without providing numbers. The firm has about 400 bankers in Japan, a number it has kept little changed for more than three years even as competitors reduced staff, he added.

“We have a strong global flavor,” Nakamura said. “We have a lot of expertise and a global footprint with bankers in Hong Kong, London, New York, and Latin America and emerging countries, which differentiates us from Japanese banks.”

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