japan inc

The check is literally in the mail for TollHoldings, after Japan Post agreed to pay A$6.5billion ($5.02 billion) for the Australianlogistics company. But after a wave of billion-dollar overseas investments by Japanesecompanies, analysts say the move may not be the last as Japan Inc. punts on overseas growth.

On February 18, Toll’s board recommended to shareholders a takeover by the Japanese postal,banking and insurance giant, valuing Toll shares at 49 percent more than the previous day’smarket close and setting a new record price for a Japanese takeover of an Australian company.

Stating that its acquisition was key to Japan Post becoming a “leading global logistics player,” Tollchairman Ray Horsburgh said in a statement: “Japan Post is one of the world’s leading postal andlogistics companies and Toll is the largest independent logistics group in the Asia Pacific.Together, this will be a very powerful combination and one of the world’s top five logisticscompanies.”

Japan Post’s president Toru Takahashi reaffirmed the state-owned company’s new ambitions,saying: “We believe the combination of Japan Post and Toll will be a transformational transactionfor both our companies and we are very pleased we have been able to reach agreement. Inpartnership with Toll we are starting a new chapter of looking outward and becoming a leadingglobal player.”

Despite being leaked to the Australian Financial Review late on February 17, the deal stunnedmarket watchers, being the largest overseas takeover of an Australian company since SABMiller’s$13 billion takeover of brewer Foster’s in 2011.

“No one was expecting a bid and if they were they weren’t expecting that sort of magnitude,” IG’sChris Weston told Bloomberg. “If you’re a shareholder today, you’re going to be fairlyspeechless.”

Tokyo-based Japan Post has annual revenue of A$30 billion and nearly 200,000 employees inJapan, dwarfing Toll, which posted revenue of A$8.8 billion in the year to June 2014, with40,000 staff in more than 50 countries.

Japan Inc.’s Offshore Gamble | The Diplomat http://thediplomat.com/2015/03/japan-inc-s-offshore-gamble/

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Yet Japan Post trails its international competitors, led by Germany’s Deutsche Post with annualrevenue of 7.4 trillion yen, and U.S.-based UPS with 6.9 trillion yen, with Toll’s acquisition set tomove it from eighth to fifth-largest worldwide.

Founded in 1871, Japan Post is part of a holding company with banking and insurance arms thatcollectively earns nearly A$163 billion in annual revenue. While its privatization was a goal offormer Prime Minister Junichiro Koizumi a decade ago, the group is finally set to go public thisfall in an initial public offering likely to raise up to 2 trillion yen, helping to reduce governmentdebt.

Japan Post said the Toll acquisition, expected to be completed by June, formed part of plans to“reinforce its domestic operations while focusing on the fast-expanding Asian market as part ofefforts to grow as a comprehensive international logistics company.”

The postal giant has already formed tie-ups with France’s GeoPost and Hong Kong’s LentonGroup, but it noted Toll’s strong presence in the Asia-Pacific region, where it derives about a fifthof its revenue.

More acquisitions are likely for Japan Post, which noted its shrinking domestic postal marketamid a declining population and growing reliance on the internet.

“Japan Post would draw on Toll’s extensive M&A [merger and acquisition] expertise and globalmanagement acumen to step up M&As throughout Asia, Europe and North America to become aglobal logistics leader,” it said.

Importantly, the inclusion of Toll would reduce Japan Post’s reliance on postal services, whichwould shrink from 64 percent to 49 percent of total revenue, while adding new revenue sources infreight forwarding, logistics and express, it said.

While the takeover is subject to shareholder and regulatory approval, Australian Trade MinisterAndrew Robb welcomed it as “a major vote of confidence in the future of the Australianeconomy.”

“This offer represents a massive endorsement of Australian skills, services and expertise andunderlines the strategic importance of Toll in the Asia-Pacific, and provides an ideal platform tospearhead Japan Post and Toll’s global ambitions,” Robb said in a statement.

“It is also a vote of confidence in future freight demand, including anticipated growth of tradeflows throughout the region, which will be underpinned by our recently concluded landmark freetrade agreements with [South] Korea, China and of course Japan,” he added.

Threat To Services?

However, Australia’s state-owned postal service Australia Post fired back, saying it wouldthreaten vital services.

“If these competitors are allowed to cherry-pick the most profitable parts of our business with noobligations to regional or rural Australia, who’s going to take care of regional and rural Australiaif Australia Post is not around?” Australia Post chief executive Ahmed Fahour said.


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Australia Post recently announced its first annual loss due to a continued slide in letter volumes,with increased retail freight from online shopping unable to cover the difference. Japan Post isalso expecting a net loss this fiscal year from its postal unit, with mail deliveries in 2013 down 30percent on the peak year of 2001.

Japan’s NHK News noted that the organization’s move abroad would expose it to “stiffinternational competition, and the road will certainly not be smooth…Japan Post is under a legalobligation to provide a universal service to the population of Japan, delivering letters andpostcards to every part of the country. If this huge investment was to be lost in future, thedomestic service might find itself in difficulties.”

The Nikkei also pointed out that the takeover premium offered by Japan Post was above the 35percent offered by Japan’s Dai-ichi Life Insurance for U.S. insurer Protective Life, or Suntory’s 25percent premium for U.S.-based Beam.

“We are buying the time we would have spent for growth,” Japan Post president Taizo Nishimuroexplained at a media conference.

Buying Spree

Despite a weakening exchange rate, Japanese companies have recently embarked on a globalbuying spree, helped by stronger Tokyo stock prices and encouraged by analysts to deploy someof their estimated $2 trillion worth of cash holdings.

Japan Post’s bid for Toll marked the fourth Japanese overseas M&A deal exceeding $1 billion in amonth, including Itochu’s $10.4 billion stake in China’s Citic, Canon’s $2.8 billion bid forSweden’s Axis Communications and the $1.2 billion offered by Kintetsu World Express forSingapore’s Neptune Orient Lines.

In Australia, recruiter Chandler Macleod announced on January 14 that it had agreed to atakeover by Japan’s Recruit Holdings for A$290 million, benefitting from the Japan-AustraliaEconomic Partnership Agreement (JAEPA) that raised the threshold for Foreign InvestmentReview Board review from A$248 million to more than A$1 billion.

“It’s clearly no surprise that they are pushing ahead with their global expansion plans,”PricewaterhouseCoopers’ Japan head, Jason Hayes told The Australian. “Many Japanesecompanies have been in a state of suspended animation in terms of coming to grips withglobalizing, but now we are seeing many of them starting to move.”

With Japan’s population forecast to fall below 100 million by 2050, the demographic imperativehas also forced corporate Japan’s rush abroad.

Fund managers have eyed more potential Japanese takeover targets in Australia, includingfinancial services companies such as AMP and Challenger. As noted by the Australian FinancialReview, “Australian diversified financials have been a happy hunting ground for Japaneseacquirers in recent years, with Dai-ichi Life picking up Tower Australia and Nikko AssetManagement coming for local fund manager Tyndall Investments.”

Japan has A$131 billion invested in Australia, making it Australia’s third-largest source of foreigninvestment, compared to Australia’s A$50 billion invested in Japan. However, the Japan Post bid


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could signify a push into new sectors compared to the traditional mainstays of agriculture andresources, according to trade watchers.

“Services is the new growth area, given that it accounts for around two-thirds of both nations’economies, and we’re already seeing this with the Recruit and Japan Post investments,” said KoNagata, managing director of Tokyo-based Global Sky Group, which has investments in Australia,Malaysia, New Zealand and Japan.

“There’s big potential for further growth in Australia-Japan trade, spurred by JAEPA, the Japantourism boom and overseas drive for growth by Japanese companies,” he added.

Melanie Brock, chair of the Australian and New Zealand Chamber of Commerce in Japan(ANZCCJ), told The Diplomat that the Japan Post-Toll deal was part of a new push by Japanesecompanies into Asia.

“What’s important in this type of investment is what it says to Australian companies who havedeveloped a footprint in Asia – they can help Japan drive its own development [into the region],”she said.

“A domestic-focused Japanese company like Japan Post can use Toll to anchor some of theiractivities through the network developed by the Australian company. Companies like Tollrepresent sectors that Japan might not have been looking at in the past, but Japan and Australiahave come together further in Asia than they might have done singularly.”

However, the investment might not be completely one-way, should Prime Minister Shinzo Abe’smove to legalize casinos win Diet approval. According to Brock, representative for Australiancasino operator Crown Resorts in Japan, foreign operators could invest as much as A$25 billioninto integrated resorts, potentially in Osaka, Yokohama or regional areas, should the legislationpass the Diet.

“Japan is seeking to revitalize regional areas and looking to attract inward foreign directinvestment. Where the integrated resort ends up is Japan’s decision, but there are many regionalauthorities which have volunteered to host an integrated resort, given the hotel, convention andentertainment infrastructure it would create. This would help reinvigorate tourism and createjobs,” she said.

In the meantime though, Japan’s business leaders are clocking up plenty of air miles investigatingpotential acquisitions. If a state-owned and traditionally conservative institution such as JapanPost can go global, others will surely follow.


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