Share this story!            

Japan’s bankers expect more mergers and acquisition in 2005

TOKYO: Japan’s bankers expect more merger and acquisition deals this year after the country’s M&A activity rose 42 percent in 2004, including a landmark tussle between two Japanese lenders to create the world’s biggest bank.

Heightened competition and a drive to avoid being a target of foreign takeovers are providing good M&A opportunities, prompting companies to seek mergers to raise their price tags, or sell off their excess operations to boost business efficiency.

M&A deals targeting Japanese companies announced in 2004 totalled $108.5 billion, the highest since 2000 and mirroring a 42 percent rise in the $1.95 trillion global market, according to market research firm Thomson Financial.

Japanese firms are also showing an appetite for equity financing this year to strengthen their balance sheets and step up capital investment in a brighter economic climate.

Japan’s equity and equity-linked capital-raising activity rose 65 percent to $60.5 billion in 2004, covering 12 percent of the global total and outpacing the global growth rate of 30 percent, Thomson Financial said.

Investment bankers say an unsolicited bid of $29.3 billion by the nation’s third-biggest bank, Sumitomo Mitsui Financial Group (SMFG), for fourth-ranked UFJ Holdings symbolised changing times in a country where hostile bids are still rare.

“SMFG’s attempt has made people think M&As are no longer an extraordinary issue,” said Sadayoshi Chiba, managing director at Mizuho Securities, the investment banking arm of Mizuho Financial Group, Japan’s biggest lender.

“I think the market will broaden even further, as companies are becoming full of pep and managers increasingly consider M&As as a common strategic tool,” said Chiba. He said more deals may be seen in the financial sector as regional banks could lean towards further realignment.

“Deals can break out even in sectors, like retail, where there has not been much activity in the past. It’s better not to assert everything is already over for the drug sector,” said Junichi Arai, head of Japan M&A for Morgan Stanley.

Industry consolidation and private equity activity, which were highlights of the M&A market in 2004, will continue to drive deal flows this year, said Masaru Shibata, head of Japan M&A for Lehman Brothers. “We expect to see those trends continue in certain sectors,” he said.

SMFG advisers Daiwa Securities Group and Goldman Sachs claimed the top and second spots in the nation’s M&A league table of announced deals, followed by Merrill Lynch and JP Morgan Chase, both of which advise UFJ.

SMFG made its bid even though rival Mitsubishi Tokyo Financial Group (MTFG) had already agreed to take over UFJ, and analysts say it has only a slim chance of succeeding.

MTFG’s bid was not reflected in the league table as the nation’s second-biggest lender — advised by Morgan Stanley, Nomura Holdings, and Mitsubishi Securities — has yet to put a price tag on its offer. Even without the bank bidding, the market had good momentum, with the number of deals at a record 2,091 last year, surpassing the previous record of 1,790 cases in 2003, Thomson said.

New rules on the way: Japan is expected to change its M&A rules in April 2006 in order to raise opportunities for cross-border merger deals through share swaps — a move that could further pressure sectors such as pharmaceuticals to take pre-emptive action against potential foreign takeovers.

Nobumichi Hattori, a professor at Tokyo’s Hitotsubashi University and a member of a key government M&A study panel, said the regulatory change would increase friendly deals by foreign firms, rather than hostile takeovers, since merger deals still require a nod from the board of a target firm. Hattori, a former head of M&As at Goldman, said the change will also open the door for Japanese firms to buy foreign rivals in share swaps. “I wouldn’t be surprised if this leads to big acquisition deals of over 500 billion yen ($4.79 billion) — similar in size to those seen during the nation’s bubble era (the late 1980s),” he said.

In a booming equity market, Nomura was the top equity book-runner in 2004 for the second year in a row, handling 161 deals at $16 billion, including initial public offerings (IPOs) of Electric Power Development, or J-Power, and Shinsei Bank Daiwa ranked second.

Japan’s IPO market saw 179 firms go public last year — the highest total since 2000, when 203 firms made their debuts — raising $15.1 billion in total proceeds, Thomson said.

“Healthy corporate demand for fresh funds is still there,” said Eishu Kosuge, general manager at Daiwa Securities SMBC’s Equity Capital Markets. “Yet things still hinge on whether we will see another rise in share prices. A rise in the Nikkei average to 12,000 or above would give impetus,” he said.

Takaya Nakamura, an IPO analyst at FISCO, said: “More companies want to be listed, but I don’t think the IPO number itself will jump much this year as listing examinations (by exchanges) are becoming tough. “The IPO market this year is unlikely be red hot like last year, and that could make some companies cautious about going public.— Reuters

Home | Business

Share this story!