Buyouts of Japanese firms likely to rise

November 25, 1990|By Journal of Commerce

TOKYO -- Corporate takeovers in Japan by foreign companies can be expected to increase in numbers and size throughout this decade, says a survey conducted by a private Japanese research organization.

The study by the Foundation for Advanced Information and Research says the pace of cross-border corporate mergers and acquisitions is likely to accelerate because of a shortage of Japanese engineers who can be recruited for Japanese companies and the evolution of business strategies.

Most of the Japanese companies available for takeovers by foreign corporations have been relatively small. However, the majority of foreign companies seeking to buy up Japanese corporations are interested in significantly larger concerns.

The report expects this mismatch to ease.

The main obstacles to foreigners buying Japanese firms have not been high Japanese stock prices or the country's legal barriers, the study said.

The authors say potential buyers have sometimes been frightened off by the likelihood of resistance to such management practices as the selling off of unprofitable divisions following the acquisition of a Japanese company.

Another barrier cited is the traditional cross-shareholding among local companies designed to provide defenses against hostile takeovers.

Foreign companies' merger and acquisition activity with Japanese corporations has involved friendly transactions, with only three or four exceptions through the years.

The report concedes that the lack of a dividend-conscious attitude among Japanese shareholders and the resultant weak pressures from the stock market also remain factors behind the relative lack of takeovers in Japan by foreign corporations.

The report added that Japanese insurance companies are now beginning to advocate higher returns to individual stockholders from the corporations in which they invest.

The report said this situation was likely to accelerate the pace of acquisition activity in Japan.

The study made no reference to Texas investor T. Boone Pickens, who purchased a 20.2 percent interest in auto-parts group Koito Manufacturing Co. last year for an estimated $800 million.

Although he and his associates then tried to play a management role as the major shareholder, he soon found himself stymied by Toyota Motor Corp., Nissan Motor Corp. and Matsushita Electric Co. The three companies together hold 33 percent of Koito stock.

The report, however, stressed that foreign corporations interested in purchasing controlling shares in Japanese companies would be wise to take Japan's management practices into consideration.

One problem involves the frequent failure of foreign managers to appreciate the long-term employment practices in Japan, which if upset after a merger can badly disturb personnel operations.

It was discovered during the survey that of the 15 foreign takeovers of Japanese companies last year, just about half were instigated by U.S. corporations, and the remainder were split evenly between European and Asian concerns.

Some of the major acquisitions involved the takeover of Sansui Electric Co. by Britain's Polly Peck International PLC; Rockwell International's absorption of Ikegai Steel's stake in their Ikegai-Goss Co. joint venture; and France's Givenchy's purchase of controlling shares of a subsidiary owned by Kawauchi Co., a medium-size trading house.

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