Today's M&A
October 21 (Friday) 2005
Corporate M&A (mergers & acquisitions) is a theme that is currently making headlines throughout Japan's industrial circles and media. In the past, M&A was thought to be at odds with the conventional wisdom, customs, and social culture of Japan; over the past couple of years however, M&A exploded into multiple sectors, becoming a crucial theme in Japanese business culture seemingly overnight. The present trends in Japanese M&A are thought to have three main currents.
The trend that is the simplest to grasp is that of IT-related companies. Fast-growing IT companies that have seen their power grow rapidly and corporate value rise are starting to exploit their fundraising capabilities by actively engaging in M&A activities. Instances in the media are myriad: Livedoor's bid to buy out Nippon Broadcasting Systems eight months ago (Livedoor acquired 35% of their stock by 8 February), the current moves by the Murakami Fund to purchase Hanshin Electric Railway Co., as well as Rakuten's proposition to TBS are all recent examples. This string of companies represents those corporations that are drawing notice by riding the crest of the M&A wave; by stirring up Japanese society in this way, these companies give the impression that M&A is an extremely familiar concept.
The second trend in M&A is that of foreign direct investment (FDI) by overseas companies. Until now, M&A by overseas companies did not make headway within Japan. Three years ago, Prime Minister Koizumi announced his policy to double the amount of investment in Japan in five years. Responding to the call for increased investment in Japan in Koizumi's January 2003 policy speech, the Committee for FDI in Japan began to implement institutional reforms of Japan's market-opening and open-door policies. Such movements served to popularize low-profile M&A activities.
The third trend can be seen in M&A activities carried out across the nation by medium and small businesses. Out of the several million medium and small sized enterprises in Japan, there are many businesses wrestling with problems of succession, and there is no small number of companies for whom succession problems lead to closure. In cases where acceptable successors are lacking, M&A by influential sponsor companies plays a major role in promoting a businesses survival and revitalization. Moreover, such movements are beginning to diffuse quietly throughout the entire country.
As a result of the synergetic effect of these trends, M&A is rapidly becoming a common theme in Japanese business culture. Fundamentally, M&A by companies with strong management ability promotes the merger/acquisition and management reform of companies that are unable to fully utilize their resources; from the perspective of the effective exploitation of resources, M&A has great economic merit. However, in order for M&A to actually produce such effects and merit, hether it is through hostile or friendly M&A, is crucial that it follows the path of increasing corporate value. In some cases of hostile M&A, the top management of the company being merged opts to swallow a poison pill-issuing new stocks at a lower price than that of the current value of stocks already held by stockholders, with the effect of lowering the value of their own company and thus making it unattractive to buy. This and other excessive defensive measures against buyouts are meant only to protect the management's own interests, and in addition to preventing the realization of a company's potential value, they also produce no merit for stockholders.
Though it is important to establish appropriate defense measures to guard against M&A, it is vital that these be designed to increase businesses corporate value. In May of this year, an announcement by the Ministry of Economy, Trade, and Industry (MITI)'s Institute of Corporate Value Research presented guidelines for the appropriate exercise of M&A and related defensive measures, but such discussions have only just begun. A great number of parties involved are already in the process of learning through various firsthand experiences.
Through learning methods such as this, and through the permeation of a proper understanding of M&A, the promotion of a more efficient use of Japan's economic resources can be expected.