Terrie's Take 720 -- Lady Luck Smiles on Masayoshi Son, e-biz news from Japan

Sun Jul 28 23:29:20 JST 2013

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, July 28, 2013, Issue No. 720

+++ INDEX

- What's New -- Lady Luck Smiles on Masayoshi Son
- News -- Chaotic wind-down for AirAsia
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Akita Citizen's Market, Sunset in Okinawa
- News Credits

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+++ WHAT'S NEW

At the start of this month, on July 5, the U.S. Federal Communications
Commission (FCC) gave approval to the US$21.6bn acquisition of cell phone
operator Sprint Nextel by Softbank. The deal brought Softbank 78% of the
outstanding shares of Sprint, and thus essentially control of the firm. It
was a triumphant moment for Masayoshi Son, the iconic founder and CEO of
Softbank, and elevates his firm into becoming one of the largest telcos in
the world.

The deal was pure Masayoshi Son, an ambitious and tenacious man who seems
to understand the art of leveraged deals better than most. In the case of
Sprint, he offered the Sprint shareholders a reasonable price right from
the start, on a company that analysts thought was a loser because of its
heavy debt load. Then, just as approvals were being sought and everyone
thought the deal was done, it was threatened by a late counteroffer by the
owner of Dish Networks, Charlie Ergen, who offered a lot more money.

Probably at this point a lesser suitor would have been sunk, but not Son.
Instead, he dug his heels in, did some intensive lobbying, reviewed his
numbers, and made a significantly better offer to Sprint's delighted
shareholders. He was able to land his whale, but even Mr. Son said later in
Tokyo that it was more expensive than he'd expected. Analysts agreed,
Softbank's stock and credit rating dropped, and the media was full of
reports about how could Softbank possibly squeeze out more profit out in
order to cover the acquisition? Certainly not easy to do when you are the
low-cost value leader in the marketplace.

But then, "expensive" is just a relative term when it comes to Mr. Son.
After all, everyone (including us) thought that the US$15bn he paid for
Vodafone Japan back in 2006 was expensive. And yet, just 7 years later he's
parlayed that business into a market cap of JPY7.8trn (about US$80bn).

[Continued below...]

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[...Article continues]

So why did Mr. Son buy Sprint? Given that the two companies are in
basically non-contiguous markets, there are no overlapping operations to
cull, no surplus managers to fire, no duplicated subsidiaries to sell off.
So basically, none of the usual synergy given as a rationale for M&A. OK,
it is true that Softbank Japan probably practices some of the tightest cost
control management in the industry, and also has figured out how to analyze
customers in great detail so as to extract more profit from them. In Japan
it's been all about bean-counting layered on to great pricing, great
products, and reasonable (sometimes not great) infrastructure. Maybe Sprint
could use a bit more of this. But Son himself isn't representing the deal
as a cost-cutting opportunity. In fact, the best he could say in that
regard was that the two firms could get US$2bn in savings on infrastructure
equipment and handsets over the next four years. It would take 40 years for
him to amortize the purchase if that was the only gain from the deal.

If it's not about reducing costs, then maybe it's about increasing users
and their Average Revenue Per User (ARPU)? Mr. Son is a strong believer in
offering the consumer everything they could possibly want, in a compelling
package. He's done this over and over. First by building Yahoo Japan into a
one stop content portal for pretty much any commercial information you'd
want from the internet, at a time when other companies were satisfied in
offering a bit of news and very few other compelling functions. As a
result, Yahoo Japan has become the most heavily visited portal in Japan,
with an earnings capability to match. Next, with Softbank Mobile, he
offered the wildly successful iPhone, uncapped data usage, and attractive
pricing plans -- the results of which are now legend.

So it would not be surprising if he is planning to bring the same radical
approach of "give the customer (a lot) more than they expect" to Sprint.
Many analysts have commented that the real value of Sprint is in its
spectrum-rich subsidiary, Clearwire. This company has enough unused
bandwidth to allow Sprint to become the fastest carrier in next-generation
4G LTE networks. As Son learned from experience in Japan, for consumer
happiness/loyalty, you need not just the cheapest prices but also a
well-performing network and lots of content, so that customers have no
reason to defect. LTE is all about speed and content delivery.

Probably the real reason that Masayoshi Son bought Sprint, though, is
personal. Given his background of overcoming hardship and fighting
discrimination against minorities (3rd generation Koreans for example), for
Son the art of business (war) has always been about winning respect and
being number one. He's an Alpha Male, and has said as much in media
interviews. Given everything that he has gone through so far, from Japanese
banks trying to backstab him, to bureaucrats who changed the regulations so
as to try to trip him up, he has learned how to fight and win.

In Son's world, the challenge of taking over Sprint is not that big a deal.
He spoke of this in one of his interviews, saying that turning the company
around will be less difficult than what he experienced with previous
businesses, like starting a cell phone company in the fiirst place (the one
prior to the Vodafone takeover). Vodaphone was also a huge challenge. Son
was in trouble from a failing internet investment strategy and he really
needed a big new play. To grab the phone business, he had to win the
goodwill of Vodafone itself and a number of foreign banks who co-underwrote
his adventure (and  which then profited handsomely from it). Then, after
having bet the farm on the acquisition, he still had to take a very sick
 company and infuse it with a new sense of mission by tearing out
lackadaisical employees who thought they were still working for a foreign
charity.

Luckily for Mr. Son, he has much better managers over at Sprint. To start
with, he is friends with the very capable existing CEO, Daniel Hesse. In a
previous incarnation, Hesse was CEO of a firm that Son invested in. They
are the same age, they have been through the wars -- one magazine article
describes Hesse as "Underneath the nice-guy exterior [Hesse] is a
tough-as-nails character hardened by decades of battles in the chaotic and
fast-changing telecom world." But for the entrepreneur title, Hesse could
probably be Mr. Son's psychological brother. This close relationship will
be important once Son starts squeezing the Sprint business to produce the
cash flow needed.

What is likely to happen to Sprint over the next few years, and ultimately
to Son and Softbank? Mr. Son has already set the tone by not making any
replacements of senior Sprint managers, yet. Instead, we imagine that he is
going to personally investigate what he can do to shake up the U.S. cell
phone industry the same way he did in Japan. Logic would tell us that he
will have to wait at least until the 4G network is built out over the next
two years. So until then we think the strategy will be to spend like hell,
get that LTE network up and running, then go after AT&T and Verizon
customers with flat-rate, low-cost accounts as in Japan.

This will hurt earnings during those two years, and so shareholders may not
be happy unless they can think longer term. But financially, possibly Mr.
Son may not care. Over the last couple of months, it has been rumored that
Alibaba, the huge Chinese e-Commerce company that Softbank owns a stake in
(31.9% on a voting rights basis), will go public soon. The rumors
are that Alibaba will list in Hong Kong this fall, and will be valued at
around US$70bn to US$80bn. Son will have known about the IPO plans weeks
ago, and maybe this gave him the confidence he needed to up his Sprint bid.
It would certainly give him confidence that he can fund a 4G build out.
There were also rumors that the Alibaba deal helped him arm-wrestle a
number of international investment banks to stump up support to push the
Sprint deal through in the face of Dish's competitive bid. We suppose that
nothing is impossible in the world of big finance, and now, with Sprint
under his belt, Mr. Son's future seem to be laid out in front of him.

At least, that is, until he finds someone else to buy out in the
meantime...

...The information janitors/

***------------------------****-------------------------***

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-----------------------------------------------------------

+++ NEWS

- Chaotic wind-down for AirAsia
- TEPCO's Hirose admits radiation leakage into ocean
- Nakodo firm expands to Thailand
- Southern blue fin tuna prices down 20%
- Abe's definition of inflation not quite kosher

=> Chaotic wind-down for AirAsia

When business schools run classes about how NOT to wind up a company in
Japan, they will probably use AirAsia as a case study. Now that it has
split with partner ANA, AirAsia finds itself unable to operate the number
of aircraft needed to fulfill its obligations in Japan, and as a result
will leave more than 14,000 paid passengers without booked transport. The
carrier is still flying until the end of October, but we imagine that few
customers will want to buy tickets, knowing that they could be cancelled
again. (Source: TT commentary from france24.com, Jul 27, 2013)

http://www.france24.com/en/20130727-airasia-japan-cancels-hundreds-flights

=> TEPCO's Hirose admits radiation leakage into ocean

Using a variety of excuses, none of which are really credible, the boss of
TEPCO, Naomi Hirose, apologized for the delay in admission by the utility
that in fact radioactive groundwater is indeed leaking into the ocean.
Apparently the company first suspected seepage into the ocean on June 19th
when it received worrying readings of Strontium and Tritium levels spiking
in a monitoring well. ***Ed: Although the foreign press hasn't picked up on
the details yet, the Japanese press were alerted yesterday to the fact that
at least one of the leaks is a power cable tunnel servicing Reactor #2,
where cesium levels of 2.35bn Becquerels/liter were detected. This is way
off the safety scale.** (Source: TT commentary from bloomberg.com, Jul 26,
2013)

http://bloom.bg/16hlIRc

=> Nakodo firm expands to Thailand

Threatened by internet dating and falling interest in getting married
anyway, Japanese matchmaker Zwei has decided that the pastures are greener
abroad. The company recently opened its first store in Thailand, in an
upmarket shopping center. The company initially targeted Thais only, but
has found that about 10% of its customers are single Japanese men posted to
Thailand, who want to meet someone before they return to Japan. Not only is
Zwei introducing them to Thai women, but also Japanese women, who are
making the trip down to Thailand because they view single men who have been
posted there as being on a desirable career track. ***Ed: Interesting angle
on how Japanese women think. With LCC airfares, a quick trip to Bangkok is
probably not such a bad idea.** (Source: TT commentary from e.nikkei.com,
Jul 25, 2013)

http://e.nikkei.com/e/ac/tnks/Nni20130726D25HH980.htm

=> Southern blue fin tuna prices down 20%

Someone forgot to tell the fishing industry that Abenomics is all about
inflation. Apparently the price for Australian-raised southern Bluefin
tuna, a major source of tuna in Japan, has fallen 20% from last year's
wholesale price, and now ships to Japan for JPY1,350/kg. Wholesalers in
Japan say demand for the fish is soft, which is attributable to a global
slowdown and consumers cutting back on fancy foods. (Source: TT commentary
from e.nikkei.com, Jul 25, 2013)

http://e.nikkei.com/e/ac/tnks/Nni20130724D2407A02.htm

=> Abe's definition of inflation not quite kosher

While government statistics this week showed that Japan experienced a 0.3%
rise in inflation for non-food items in May, and thus financial types were
patting each other on the back, a look at the source of that inflation
shows that things are not quite what they seem. As an article in
businessinsider.com points out, in fact, increased imported energy prices
were mostly responsible for the inflation increase, and if stripped out,
then consumer prices would have actually FALLEN 0.2%. ***Ed: Oh, dear...
Back to the drawing board guys.** (Source: TT commentary from
businessinsider.com, Jul 26, 2013)

http://www.businessinsider.com/japan-inflation-driven-by-energy-prices-2013-7

NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.

***------------------------****-------------------------***

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In 2011, we lost a great friend and colleague, Bob Grondine. Bob made
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well as important civic and charitable efforts. Not only was Bob a
wonderful friend, family man and mentor, he was also a role model as a
leader in US-Japan relations.

Among a number of US-Japan causes, Bob was an important supporter and chair
of the Japan Advisory Committee of the United States-Japan Bridging
Foundation, an organization established to grow global leaders through a
program providing scholarships to American college students to study in
Japan. Students designated as Grondine Scholars will be selected for their
ability to emulate Bob's intellect and spirit as well as his dedication to
the
US-Japan relationship. The fund will keep his mentoring spirit alive and
memorialize his great legacy.

Donations of all amounts are welcome. To learn more, visit
www.bridgingfoundation.org or click on the link below. Thank you.

https://donatenow.networkforgood.org/us-japanbridgingfoundation
-----------------------------------------------------------

+++ CANDIDATE ROUND UP/VACANCIES

=> BiOS, a leading bilingual IT services and resourcing company, is
actively marketing the following positions for customers setting up or
expanding in Japan, as well as other employers of bilinguals.

** HIGHLIGHTED POSITION

BiOS is urgently looking for an Account Manager with experience in
recruiting and account management for IT infrastructure service delivery,
at our BiOS office in the Minato-ku area. The candidate will be responsible
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management, or similar client-facing tasks, preferably in IT. In addition,
since this role requires direct communication with both internal staffs and
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Japanese will be required.

Remuneration is JPY3.6m - JPY4.5m plus commission, depending on your
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- Front End Engineer, Japanese e-commerce services provider, JPY5M - JPY11M
- Helpdesk/Desktop Support Engineer, global food/beverage import firm,
JPY3M - JPY4.5M
- Desktop Support Engineer (Okinawa), global bank, JPY3.5M - JPY5M
- Bilingual Sales Administrator, BiOS, JPY3M - JPY3.5M
- Server (Windows/LINUX) Engineer, Japanese IT services provider, JPY4M -
JPY6M

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-----------------------------------------------------------

***------------------------****-------------------------***

+++ UPCOMING EVENTS/ANNOUNCEMENTS

=> No events announcements this week.

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted by readers. We
encourage you to spot our mistakes and amplify our points, by email, to
editors at terrie.com.

=> No corrections or comments this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Akita Citizens Market
Where locals come for free market action

The Citizens Market sounds like some throwback to the Soviet era, to a time
where the socialist utopia promised enough food for all. There are no
posters advancing the workers's progress however, and if you want to see
pictures of a workers and farmers movement, you may be better off heading
down to the aptly named red brick building to view the works at the Tokushi
Katsuhira Memorial.

On the other hand, if you want to find out where the locals come to
participate in some free market action, this is the place. In a small city
like Akita, word gets out quickly on where the freshest and best food is to
be found. If you want the best and freshest of all, you must go to the
markets. Even the film crew from the TV series 'Iris' came here to sample
the wares.

http://en.japantourist.jp/view/akita-citizens-market

=> Cape Zanpa Sunset, Okinawa
A Beautiful Coastline, a Lighthouse & The Setting Sun

Cape Zanpa is one of the most beautiful locations to witness the sun
setting into the East China Sea. Okinawa is known for its beautiful capes,
however, Cape Zanpa is one of the few capes on Okinawa Island that has an
operational lighthouse, and is easily accessible from Naha and surrounding
villages. The rugged coastline and rustic lighthouse make an ideal setting
at any time of day, however, I decided to visit closer to dusk, to witness
what was one of my personal favorite sunsets in recent memory. [Ed: Really
nice photos with this story.]

http://en.japantourist.jp/photos/cape-zanpa-sunset

***------------------------****-------------------------***

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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