Exclusive outtakes from industry leaders
Japan’s takeover rules are destined to be shaken up — but probably not for some time.
The government wants to adopt Britain’s takeover rules rather than base policy on the U.S. model.
Hiroaki Niihara, director of the corporate system division at the Ministry of Economy, Trade & Industry, told the Reuters Japan Investment Summit that current rules make it too easy to defend against approaches and are bad news for minority shareholders.
A “poison pill” takeover defence by Bull-Dog Sauce Co in 2007 showed up shortcomings, he said.
After falling off a cliff at the start of this year as the global financial crisis gripped, mergers and acquisitions by Japanese companies overseas are likely to pick up again in the second half of this year, according to boutique Japanese M&A advisory firm Recof Corp.
There won’t be a flood of deals, Recof President Hikari Imai says, but the ones there are, are likely to be chunky as Japanese companies expand their frontiers beyond domestic markets where growth prospects are limited.
Japan is edging towards the introduction of independent directors and auditors for publicly listed companies, but so far even the idea of having someone from outside at the top of a company remains a foreign concept.
The tradition is for someone to join a Japanese company at age 22 with the ultimate goal of serving on the company board, says Takeyuki Ishida, the head of Japan Research at RiskMetrics Group, which advises institutional investors on how to vote their shares.
A few years ago, domestic and international financial players were chomping at the bit to lure Mrs. Watanabe’s millions of yen or fellow Asians’ yuan, won or dollar holdings from their futons or equal-interest savings accounts.
The global financial crisis in the last year has sparked a rejigging of foreign institutions’ expectations about Asian wealth and their own ability to attract it, with some opting out of the game altogether.
The conventional wisdom is that private equity is comatose in Japan, at best, with some major firms leaving Tokyo, deal numbers sliding and even old Japan hands like Advantage Partners seen as looking to exit mature investments.
Yet Richard Folsom, Representative Partner of Advantage, tells a very different story with deals in the pipeline, finance on tap and some ripe fruit about to be picked — even if his firm has yet to announce a new investment deal this year.
If the Nikkei’s spring rally from multi-decade lows whet appetites for a “Japan is back” soaring benchmark, it’s time to check that excessive exuberance, says Deutsche Securities’ Naoki Kamiyama, who sees a top of 10,500 yen for the Nikkei 225 and 1,000 for the Topix over the next year.
No one was expecting a return to 30,000 or even 20,000 for the Nikkei, which has found upside tough after a recent crack above the 10,000 line. But the veteran of many years of Japan asset-watching says market optimism is now meeting reality, with gains of less than 10 percent from current levels likely.
Even in the best of times, Japan has never been a cakewalk for foreign investors. But in the wake of the global credit crisis, the world’s second-largest economy can be downright baffling.
Mongolia may seem like an extremely exotic investment destination in a world where money is heading for safety and avoiding risk, especially when violent riots are seizing the capital, Ulan Bator. But not for Junichiro Sano, president and CEO of Dalton Investments KK. “I found really special investment opportunities,” Sano said at the Reuters Japan Investment Summit. Sano said he’s been travelling to Mongolia regularly to learn more. The Mongolian Stock Exchange is made up of 360 companies and a total market capitalisation of $750 million, Sano said. As for corporate governance in Mongolia, a topic of much debate at the summit, Sano simply said: “It is nothing.” Seventeen stock brokers are in the country, but there is no official qualification. Riots have hit Ulan Bator this week, leading to five deaths, over accusations of fraud in a parliamentary election held last weekend.
Japanese companies are on the prowl for foreign assets, and this time it has nothing to do with Rockefeller Center and world-famous golf courses as Japan was famed for snapping up in the late 1980s at inflated prices. Steven Thomas, managing director and head of Japan mergers and acquisitions at UBS, said at the Reuters Japan Investment Summit that Japan Inc. sees foreign acquisitions as necessary to open up growth opportunities.
No country has been a bigger fan of the dollar over the years as Japan. You can see it in the country’s $1 trillion of foreign exchange reserves almost entirely concentrated in U.S. bonds or the sheer portfolio flows in the greenback month after month. But that may be changing. Yuuki Sakurai, head of financial planning and investment at Japan’s No. 9 life insurer Fukoku Mutual Life, said the dollar’s long role as the centre of the global currency universe may be coming to an end, partly due to politics. “Look at the U.S. position in the world community, that’s changing and that’s part of the story. I think Pax Americana, that regime is gone. But it’s not happening overnight, it’s changing gradually,” said Sakurai, whose oversees about $54 billion of assets, while speaking at the Reuters Japan Investment Summit. “If you think that a paradigm based on the dollar may be starting to change and that the euro’s weight globally may come close to matching the dollar’s presence, the dollar might fall to 80 yen in the future,” Sakurai said. “I am saying something a bit extreme, but the dollar might fall below 50 yen 10 years from now,” he said. The dollar is near 106.50 yen now, up from a 13-year low of 95.77 yen in March, but it is still not far from record lows against the euro.