1. Publication: Jamaica Observer; Date: Oct 15, 2008; Section: Business Observer; Page: 20B
Japan: bullish outside its borders
WHEN people say that “the Japs are coming” we often remember the attack on Pearl Harbor. However, the Japanese are indeed coming and
this time it’s to Wall Street and financial markets beyond. The US financial turmoil has proven quite lucrative from a long-term perspective
for many
cash-rich Japanese
companies. This is
due to the discipline
of maintaining high
retained earnings,
and consistent
profits have stashed
away quite a wad of
cash. Japanese RAUL reserves are
standing at a
mammoth US$60 trillion, and they are investing everywhere, not just the US.
The credit crunch has prevented many other companies/countries from raising the capital needed for investments or even bailouts. In this
current financial climate there is need to consolidate to fend off pressures during a global downturn being led by the US. Credit is not readily
available in both Europe and America and this is illustrated through the capital value of mergers and acquisitions. In Europe it fell by 15 per
cent and in the US it fell by 30 per cent. The cheap credit that caused the subprime crisis has evaporated credit overall. The ability to buy
companies and real estate is difficult if cash is not on hand. This is where the Asians have launched their fullscale offence.
We mentioned Japan as a great saver but let’s not overlook the everlasting China which has a Sovereign Wealth Fund with more zeros than
I can count. The Japanese, unlike the Chinese, are already considered a developed country and therefore have more money to spend outside
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2. their borders. This is not the first time that the Japanese have sought to use its cash-rich
advantage to buy out
firms in search of an
excellent deal. The
ability to buyout
sounds attractive but
it has not always
worked in the
Japanese favour. In
by the late 1980s, HAYNES Japanese firms went
in on the foreign real
estate market and in the late 1990s they fully took on the tech markets in the US and Europe. Both bubbles burst on the Japanese and they
had to sell at a loss and return to their “stagflated” homeland.
However, Japan’s economy is shrinking and the population is ageing at a faster rate than most in the world. The ability to reinvest in Japan
is gradually waning due to a culture of family -run businesses and corporations that fuel an aversion to local mergers and acquisitions. In
addition, a strengthening yen in the current financial misery of the West has brought nice tidings to the East because the Japanese currency
can now stretch much further. It is apparent that this time around the Japanese may come out winners on their world merger and acquisition
tour.
Let’s take a look at some examples of recent Japanese acquisitions. Takeda Pharmaceutical paid US$8.8 billion for America’s Millennium
Pharmaceuticals to get hold of its cancer drugs. Daiichi Sankyo paid US$4 billion for Ranbaxy, an Indian maker of generic drugs which is
doing very well in the emerging markets. TDK, an electronics firm, is spending ¥200 billion on Epcos, a German firm, to assist in making
processes more efficient with regard to production. Tokio Marine, an insurer, is paying ¥500 billion for Philadelphia Consolidated, to enter the
US insurance market.
More recently, Nomura Holdings purchased the European, Asian and Middle Eastern operations of Lehman Brothers for a steal after it went
bust. Not to mention the trophy purchases of Rockefeller Center and Pebble Beach, Florida. Last but not least, Mitsubishi UFJ Financial Group,
a Japanese bank, paid US$9 billion for a 21 per cent stake in Morgan Stanley, now a struggling American securities firm. Corporate shopping
is definitely one of the Japanese favourite pastimes.
Unlike in previous overseas acquisition sprees, the Japanese are regarded as good owners by foreign companies, based on a review by the
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3. wellrespected Boston Consulting Group (take for example our Japanese- owned Jamaica Public Service. This is because they have a good
reputation for being sensitive to the macroeconomic needs of the places they move to. For
instance, unlike most private-equity firms they are normally long-term investors and try to retain as many local managers as possible.
Japan’s global investment counterparts from the Gulf and China (the only regions with “massive” liquidity at the moment) have an infamous
reputation for not being considerate of maintaining local management or the environment in the places they go (Chinese pollution).
At this time we in Jamaica need to look to the East, especially Japan, to seek aid from their surplus capital. We already have a foot in the
door
with regard to reggae and dancehall and should examine options with regard to financing some of our infrastructural and business
developments. It is relative to a drop in the bucket from Japan’s perspective if Jamaica were to benefit from Foreign Direct Investment
totalling US$1 billion from Japan. This amount could on the other hand go a far way here. We must work harder to attract capital at a time
when the Japanese have a lot of money to go around.
Raul Haynes is a research analyst at
Stocks and Securities Ltd. e-mail:
rhaynes@gostocksandsecurities.com
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