Terrie's Take 799 -- Why Japanese M&A Will Continue to Rise. E-biz News from Japan.

Terrie's Take terrie at mailman.japaninc.com
Mon Apr 13 00:25:24 JST 2015

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term 
technology and media entrepreneur living in Japan.

General Edition Sunday, April 12, 2015, Issue No. 799

- What's New -- Why Japanese M&A Will Continue to Rise
- News -- Perils of Thai LCCs
- Upcoming Events
- Corrections/Feedback -- Where is Changi Airport?
- Travel Picks -- Tofu Sweets in Sendai, Fake Flowers in Tokyo
- News Credits

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CNBC ran a piece this week about a Goldman Sachs research report stating 
that the investment bank expects the level of Japanese M&A both in Japan 
and abroad to double in value. The report noted that Japanese major 
listed companies in particular are sitting on record amounts of cash and 
need to do something with it. We would very much agree with the notion 
that Japanese M&A activity will perk up significantly in coming years. 
While Goldman Sachs specializes in deal of more than $100m, we are also 
seeing many smaller firms in the market who are putting together M&A 
discovery teams and actively looking for deals.

Goldman's report says that Japanese firms paid out JPY3.9trn in 
takeovers in the first three months of 2015 alone, a massive 76% jump in 
activity as compared to last year. Now, to be fair, last year was the 
quietest year for Japanese M&A since 2002, and furthermore a big chunk 
of the new transaction value was due to Japan Post's rich US$5.1bn 
purchase of Australian firm Toll Holdings in February. But nonetheless, 
word around town is that international legal offices are hiring more 
lawyers, and are burning the midnight oil. It appears that M&A has come 

But as a friend commented to us recently, "With the cheap yen, isn't an 
increase in M&A abroad counterintuitive?" He brings up a good point that 
the right time for Japanese firms to do buy-outs overseas would have 
been prior to 2012, when the yen provided them with twice the leverage 
that it does today. But then, back in 2012 companies weren't sure if 
they could even survive in Japan, because anything they made here was 
just too expensive to sell abroad. In contrast, in 2015, exporters are 
well past their optimum yen-dollar rate of 100-110. Instead they are now 
asking the government to slow down the devaluation schedule.

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[...Article continues]

So with a high yen, why are Japanese companies on an M&A bend in 2015? 
We think there are three main reasons: timing, cheap money, and survival.

1. Timing
Japanese companies have always been slow to change strategies and adjust 
to market trends. After a flat period from 2010-2013, international M&A 
activity has increased significantly and in 2014 deal volume hit 
US$3.6trn, the third highest year ever. This, even as Japanese M&A was 
in a relative slump. The sight of more agile international competitors 
snapping up smaller innovators and controlling new sectors has finally 
registered with Japanese senior managers. They realize that if they 
don't join in, they will be outmaneuvered.

2. Cheap money
With the Bank of Japan, the Government Pension Investment Fund, 
Development Bank of Japan, and a number of other entities all buying 
shares in the stock markets, it is no wonder that the Nikkei index this 
week passed 20,000 for the first time since April 2000. This means that 
even though the yen has fallen 35% since 2012, the stock market is up by 
more than 100% over the same period. Companies can buy assets with those 
newly revalued stocks -- a gift from Abenomics.  There is also the fact 
that Japanese banks no longer buy Japanese Government Bonds because the 
Bank of Japan is buying them all, so they need to increase their loan 
portfolios. Large companies can get funding for massive M&A deals with 
10-year terms at historically low rates...

3. Survival
...And so if you can borrow money at 0.7% or less for 10 years, it means 
that any M&A where the target is earning more than 10% gross profit will 
not only pay for your acquisition over a 10year worst case scenario, but 
if things go well, it will also significantly add to your bottom line 
back in Japan as well. In short, it's a money game which really only 
comes undone if the target company doesn't perform as expected. This is 
why Japanese companies pay so much more than the market price, because 
they are trying as hard as they can to not only buy quality but also 
management commitment to continue to run the business in the same manner 
in the future.

Now, with each acquisition you would think that Japanese head office 
would like to import some of the newfound skills and people from their 
successful subsidiaries, so that they can pep up the business back home. 
But far from it. What they want to import is one thing only -- profits 
from the remotely managed operation. This is becoming exceedingly 
obvious as you look at the resurgent Current Account surplus. What we 
are seeing is a coordinated effort to grow Japanese businesses without 
having to change how they do things in Japan. We're not sure if this is 
a good or bad trend, but it certainly does remove any need for 
restructuring for yet another business cycle.


Lastly, in an M&A a little bit closer to home, Fuji TV-lab, a subsidiary 
of Fuji Media Holdings, has purchased a majority share of 
foreigner-owned GPlus Media. You may know GPlus as the publisher of the 
Japan Today news site, the GaijinPot English teacher forum site, and 
several other online properties. The purchase is rumored to be valued 
between JPY200m-JPY300m. Fuji says that they will use the Japan Today 
publication in particular to expand its overseas operations. We're not 
really sure how they think the acquisition will achieve this, but 
nonetheless, our congratulations go to the two founders, Erik Gain and 
Peter Wilson, for a well-managed earn-out during a difficult period for 
foreign media in Japan.

...The information janitors/


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+++ NEWS

- Perils of Thai LCCs
- UK analysis finds high mercury contamination in whale, dolphin meat
- Court tells Google to remove negative reviews
- Some companies are making a LOT of money -- surplus at 4-year high
- Saitama school kids caught shop-lifting in S. Korea

=> Perils of Thai LCCs

Although flying by the seat of your pants is becoming the new norm for 
SE Asian LCCs these days, Japanese aviation authorities were not 
impressed when a flight approval application was delivered too late to 
be processed properly. As a result, 233 would-be passengers on Asian Air 
DM464 charter flight were prevented from flying to Hokkaido last week. 
The airline has since compensated the passengers for both canceled 
tickets and inconvenience caused. ***Ed: One wonders if the 
Japanese-side approval hold-up was really necessary, or perhaps 
something more political? Certainly the two big Japanese airlines are 
increasingly feeling pressure from the many foreign LCCs "invading" 
their shores.** (Source: TT commentary from nationmultimedia.com, Apr 
12, 2015)


=> UK analysis finds high mercury contamination in whale, dolphin meat

UK-based Environmental Investigation Agency (EIA) has announced that 
whale and dolphin meat samples acquired from vendors at Yahoo! Japan and 
various supermarkets exceed Japanese safety limits for mercury 
contamination by up to 47 times. The EIA bought 13 samples, and found 
that a package of pilot whale meat had mercury levels of 19ppm, 47 times 
higher than the safe limit of 0.4ppm. A dolphin meat sample also came in 
at 11ppm and pilot whale spare ribs at 13ppm. ***Ed: This article also 
mentions that even though the folks at Taiji have elevated mercury 
levels in their blood and body tissue. Interestingly none of them seem 
to be suffering any ill effects. Could it be that the consumption of 
wasabi and other sulfur-rich foods are protecting them? Interesting.** 
(Source: TT commentary from theguardian.com, Apr 09, 2015)


=> Court tells Google to remove negative reviews

The blogosphere is alive today with criticisms of a ruling by the Chiba 
District Court that will force Google to take down critical customer 
reviews from a Google Maps site. The court found that the postings were 
defamatory towards a medical clinic and a key witness was one of the 
doctors who presented an affidavit denying the claims of the two 
posters. ***Ed: Bloggers are complaining that Japan is enduring a bout 
of news censoring, somehow tying this event to the news that an Asahi TV 
program is being targeted for pressure by the government. However, we 
believe the bloggers have the wrong end of the stick. The Japanese 
courts may not always act justly in the western sense, but they do 
nonetheless have a set of rules and they follow these closely. If the 
court found the posts to be defamatory, then the implication is that the 
posters of those reviews were acting as more than just unhappy 
customers. It's easy to forget that malicious internet users can simply 
make stuff up -- the internet is not a newspaper that is legally liable 
for what it says. We are always reminding our teenage kids of this 
fact.** (Source: TT commentary from techcrunch.com, Apr 10 2015)


=> Some companies are making a LOT of money -- surplus at 4-year high

Japan's Current Account surplus was at its highest in 3 1/2 years for 
February. The Finance Ministry said that Japan had a JPY1.44trn surplus, 
mainly due to cheaper oil costs and a slight increase (0.4%) in exports. 
This is the third month of increasing surplus, and the eighth month 
overall for a surplus. The bulk of the surplus increase appears to be an 
increase in interest income from overseas bonds and other investments, 
coupled with the cheaper yen increasing the value of those returns. 
(Source: TT commentary from wsj.com, Apr 7, 2015)


=> Saitama school kids caught shop-lifting in S. Korea

In a humiliating (for Japanese teachers and politicians) incident, 22 
students from a Saitama high school soccer club have been charged in 
South Korea for  shoplifting goods at a Seoul shopping mall, to the 
value of JPY277,000. The kids were on the last day of a soccer 
tournament visit, prior to returning to Japan. They were caught on 
security cameras nabbing goods at nine different stores. ***Ed: In a 
remarkable turn of events, after the South Korean police decided to 
bring charges, the kids, who had already returned home to Saitama, were 
forced to go back to Seoul to both return the stolen items and also to 
be grilled. No word yet on what their fate will be.** (Source: TT 
commentary from japantimes.co.jp, Apr 10, 2015)


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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=> Our article in TT-797 last week we mentioned that we had ridden the 
train past Changi airport in HK. A number of readers pointed out we must 
have been particularly sleepy during the edit phase of the newsletter 
(which is true, actually), because Changi is in Singapore! Apologies if 
we sent anyone seeking a similar experience on a wild goose chase...!



=> Senz: Soy and Cafe, Miyagi-ken
Showing that soy is no "has-bean"!

The staple of the Japanese diet is rice, but another of the cuisine's 
key features is soy. Immature beans are boiled and eaten with salt as 
edamame, mature beans are made into tofu and soy sauce, and fermented 
into natto. Senz is a cafe that makes the most of this versatility, 
incorporating it into almost everything on the menu. It's only a few 
minutes from Itsutsubashi subway station in Sendai City. It was founded 
on the conviction that soy has many health benefits, and they only use 
high-quality, Japanese beans.

The first thing you notice at Senz are the friendly colors and modern 
feel. Above the counter is a bright sign showing a colorful array of 
drinks. The cafe might be small, with only a few seats, but it is all 
bright colors and healthy food. The drinks come in a wide range and are 
all made with soy milk, so they're suitable for vegans and anyone with a 
lactose intolerance. I highly recommend the citrus and cinnamon, (¥620) 
which seems strange at first, but after a few tastes I couldn't stop 
drinking it!


=> Maru-K Kobayashi in Asakusabashi, Tokyo
Artificial flowers from a local craft store

Asakusabashi, which is well known for its wholesale stores and markets, 
is located one stop after Akihabara station on the JR Soubu Line. Craft 
materials such as beads, stationery, Japanese dolls, party items, as 
well as bag and dress shops are lined up along on the main street. I 
visited this town for my friend's wedding party, to buy an artificial 
flower decoration. Maru-K Kobayashi is a floral design and material shop 
which is 5 minutes away from Asakusabashi station on foot. It was 
founded in 1947 and its main customers are professional corporations, 
shops, and art schools -- testimony to the quality of this store.

You will see colorful ribbons and preserved flowers on the first floor. 
The basement has beads, craft paper, and wire which can be used for 
arranging artificial flowers. The second floor has lots of artificial 
flowers. Another attraction of this shop is its low prices. It is much 
cheaper than Tokyu Hands and other craft shops in Japan as it is a 
wholesale merchant. Note that they don't offer floral arrangement 
services but you will find displays of wedding bouquet and flower 
arrangements for purchase. The prices depend on the size and design and 
range from 150 Yen to 2,000 Yen.




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

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