Unexpected Impact of Livedoor M&A Deal

April 04 (Monday) 2005

One of the issues currently exciting the mass media is the buyout of the Nippon Broadcasting System and the aggressive takeover maneuvers for Fuji Television Network by the innovative IT service provider Livedoor. Repeatedly exploiting the various loopholes in the capital market regulations, Livedoor's strategies have educated all of Japan about corporate takeovers and stock controls. While these events have offered a few lessons for the market, they have also managed to influence a critical national policy to promote investment in Japan. I would like to take this opportunity to offer a few comments on these developments.

Livedoor's market strategies have heightened awareness concerning three main issues: 1) the importance of stock market strategies for corporate management, 2) the inadequacy of regulations governing capital markets such as the stock market, and 3) the fact that excess profits have piled up in protected industries like broadcasting. Finally, in what is an even more pressing issue, they have also elicited an unexpected response from the government: to put the brakes on its national strategy to promote foreign investment in Japan.

An advanced country with a mature economy, Japan has recognized the economic need for the fresh stimulus brought about by foreign investment. Under Prime Minister Koizumi's promise to double stock investments in Japan, the government has been pursuing, for the past five years, radical policy reforms in an effort to open the doors to FDI. One of the most important and anticipated components of this initiative was the new set of codes that would regulate triangular mergers, a strategy by which stocks of a foreign company's holding company could be utilized in return for a merger.

But Livedoor's recent actions struck fear into many managers and politicians who began to worry that the new commercial code reforms would increase the dangers of corporate hijacking. Business executives pulled the reins on the Keidanren policies, which had been strongly in favor of FDI, and several outspoken politicians put pressure on the government to review the reforms that would make it easier for companies to merge. As a result, of the expected commercial code reforms, all those parts relating to triangular mergers have been put on a one-year freeze.

Amidst the globalization of economic competition, Japanese corporations have used mergers with companies from around the world to boldly expand their business activities. It goes without saying that, in order to take the next step toward globalization, Japan must likewise liberate its own domestic market to foreign investors. Thus, the postponement of the commercial code reforms, which intended to lay the foundation for this type of market, presents nothing but a great obstruction to the international development of the Japanese economy. It is strongly hoped that this one-year moratorium will become an opportunity to deepen our understanding of the important exchange that takes place through FDI so that, once it is concluded, Japan will then be able to implement even better reforms toward establishing a healthy and robust economy that is open to foreign direct investment.