Mergers and Acquisitions: The Restructuring of Japanese Corporations

No.75
April 2000
Research Fellow Hidetaka Yoneyama

1. Japanese business restructuring is progressing at a fevered pitch through rapidly increasing merger and acquisition (M&A) activities, cutting away unprofitable sectors, strengthening core business by purchasing other businesses, and numerous other strategies. Various M&A methods are appearing in Japan, including heretofore-unseen MBO (management buyout) and hostile corporate takeover bids (TOB). Additionally, Japan-targeted FDI and M&A as a result of foreign businesses is also increasing. This report will examine the present state of Japanese business reconstruction via M&A and future policy issues.
2. When viewing the significance of M&A from the perspective of industrial revival, three points are raised: First, M&A promotes capital and labor relocation. If capital and labor are moved quickly from businesses where they are no longer needed to businesses where they are needed, M&A can contribute to the elimination of surplus facilities and employment. Second, M&A can offer a method of risk management. If the profitability of M&A gains attention, and risk management becomes easy to accumulate, business reconstruction will be accelerated even more. Third, the effects of M&A extend to corporate governance. If latent fears concerning hostile corporate takeovers grow as a result of the intensification of M&A, these fears will become an important factor for setting management discipline in motion.
3. At the same time, the expansion of FDI in Japan could become "management importing", and thus serve as a powerful stimulus to Japanese managers. Furthermore, growing FDI in Japan can also serve the role of "risk-management importing". FDI in Japan was met with wariness in the past, but these attitudes have turned 180 degrees and FDI is now seen as a method for industrial revival that should be exploited.
4. Consolidation of the legal system aimed at lubricating business restructuring has also reached a fevered pitch over the past year; such measures include the easing of operation policies for the Anti-Monopoly Law, the introduction of a stock-exchange system, the enforcement of the Civil Rehabilitation Law, and the construction of a corporate divesture system. However, the early introduction of a consolidated tax system, the legalization of issuing divisional stocks, and other issues still remain to be addressed.

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