It is an Asian economic powerhouse and its corporations, bolstered by a strong currency, are in the midst of an unprecedented $100-billion (U.S.) foreign acquisition spree.
It holds $1.12-trillion worth of U.S. treasuries and is expected to become the United States’ largest foreign creditor by the end of the year.
Thinking China? Think again.
Japan is once again perched near the top of the global finance chain and has reclaimed its once dominant role in international merger and acquisition activity.
This week, Tokyo-based Softbank Corp. struck a friendly $23.3-billion deal to acquire a 70-per-cent controlling stake in struggling U.S. telecom firm Sprint Nextel Corp. It is believed to be the largest foreign acquisition ever by a Japanese company, surpassing Japan Tobacco Inc.’s purchase of Gallaher Group of Great Britain in 2007 for about $19-billion and easily topping the $9.8-billion stake in AT&T Wireless that NTT DoCoMo bought in 2000, as well as the $8.1-billion purchase of Millennium Pharmaceuticals by Takeda Pharmaceutical Co. in 2008.
The Softbank bid for Sprint follows a $5.6-billion deal in May by Japanese trading house Marubeni Corp. to buy U.S. grain handler Gavilon Group LLC. That same month, Japan Tobacco offered to buy Belgium’s Gryson NV for $600-million, and Takeda said it would take over a drug maker from Brazil for $246-million.
The surge in overseas deals by Japanese firms is a bold-faced corporate quest for growth, fostered by a rising Japanese yen that has increased purchasing power by about 10 per cent in two years. While Japanese firms are, according to data from the country’s central bank, sitting on about $2.6-trillion in cash, Japan’s economy has been largely stagnant for almost two decades and is expected to post GDP growth of about 1 per cent this year.
Cash-rich and faced with weak prospects at home, Japanese companies are “looking for growth and diversification,” said Russell Mark, a chartered accountant in Vancouver and former investment counsellor at the Canadian embassy in Tokyo during the late 1980s and early ‘90s.
The U.S. economy is not growing much faster than Japan’s but certain industries do offer opportunities that the Japanese domestic market does not. According to Bloomberg, shipments of new phones in Japan have fallen 27 per cent in the last five years.
Including the Sprint deal, Japan’s overseas acquisitions this year now top more than $100-billion, already ahead of the record $84-billion spent in 2011. Last year’s purchases pushed Japan to No. 3 in global deal rankings up from No. 9 in 2010 according to deal tracking firm Dealogic.
The current pace of Japan’s M&A activity is more than triple that of the peak during the 1980s and early ‘90s, according to figures from Thomson Reuters. In an August report, the McKinsey Global Institute predicted that if the trend of overseas deals continued, “Japanese cross-border M&A activity will soon surpass its 1990 peak.”
It was during that period that Japanese companies snapped up U.S. trophy assets including Rockefeller Center, the Pebble Beach Golf Course and Columbia Pictures Entertainment, spawning a swell of consternation in the west. The acquisitions did not turn out well for their Japanese acquirers and prompted a spike in xenophobic reaction in the West that were synthesized in Michael Crichton’s alarmist novel Rising Sun.
Reaction to the latest round of Japanese deals, however, has been muted in the United States, where politicians, like their Canadian counterparts, have been focused on China’s rising M&A ambitions.
While reserving judgment on the Softbank deal, Mr. Mark said corporate Japan is unlikely to repeat the same mistakes it made during the spending spree of the go-go 1980s.
“Japanese overseas investment has matured from 20 years ago when they were after bragging rights and trophy properties. They’re making highly strategic business moves,” he said.
Still, Japan’s rising global financial clout may soon be hard to ignore, particularly for U.S. politicians such as presidential candidate Mitt Romney who has repeatedly raised alarm bells about China’s $1.15-trillion in holdings of U.S. treasuries. According to Bloomberg, Japan, which currently holds $1.12-trillion of U.S. treasuries, is on pace to overtake China by January as the U.S.’s largest creditor.