Japanese Outbound Acquisitions (eBook)

Shigeru Matsumoto, Professor, Graduate School of Management, Kyoto University, earned his Ph.D. from Kobe University. For his doctoral dissertation, he conducted an in-depth study of Japanese cross-border M&A. He also has an MBA from Thunderbird School of Global Management, which he attended on the US Fulbright Program. He has 20 years’ of experience in investment banking and advisory at global institutions, including HSBC (The Hong Kong Shanghai Banking Corp.), Macquarie Capital, and PricewaterhouseCoopers (PwC). He has served as an advisor on over 50 Japan-related cross-border M&A transactions in 20 countries, including the US, the UK, France, China, and Vietnam. In 2015, he won the 9th Grand Prize at the Mergers & Acquisition Forum for his recent publication on Japanese cross-border acquisitions.

Preface 5
Contents 8
Intended Readers 11
About the Author 13
List of Figures 14
List of Tables 18
Chapter 1: Introduction 20
1.1 Discussion in the Board Room and the Landscape Outside the Company 20
1.2 Trillion Yen Deals: The Likelihood that an Acquisition Will Succeed 24
The Points in Common Among One-Trillion-Yen Acquisitions 24
One-Trillion-Yen Acquisitions and Their Respective Likelihoods of Success 25
1.3 Analogy Between Outbound Acquisition and Professional Baseball 29
1.4 The 30 Years Since Japanese Outbound Acquisitions Became Full-Fledged 33
Part I: The Nature of Failure 35
Chapter 2: The Five Pitfalls 36
2.1 The Five Benefits of Acquisition Sought by Managers 36
2.2 Three Case Studies Illustrating the Pitfalls Within the Potential Benefits 39
Acquisition of Firestone by Bridgestone (1988) 39
The Acquisition of Pilkington by Nippon Sheet Glass (2006) 43
The Acquisition of Lucent Technologies’ Fiber-Optic Cable Business by Furukawa Electric (2001) 49
2.3 Is an Acquisition a Good Deal When the Yen Is Strong? 52
2.4 Correcting Illusions Surrounding Overseas Acquisitions 55
Time You Can “Buy” by an Acquisition and Time You Cannot Buy by Acquisition 55
Pitfall of Increasing Global Market Share 57
Pitfall of Cross-Border Synergy 58
Trap of Overconfidence in Local Managers 60
A Strong Yen Does Not Necessarily Increase the Probability of Success 62
Reference 64
Chapter 3: Measuring Performance of Japanese Outbound Acquisitions 65
3.1 How Do You Measure the Success or Failure of Acquisitions? 65
3.2 The Three Criteria for Determining Success or Failure 69
The First Stage: Company Survival Condition 69
Second Stage: The Continuous Ownership Condition 69
Third Stage: The Profit Growth Condition 71
3.3 Only 9 Deals Were Successes, While 51, or Nearly Half, Were Failures 74
Results of the Determination 74
Cases Determined to Be Failures 78
Cases Determined to Be Successes 78
References 79
Chapter 4: The Causes of Failure: Case Studies of Eight Failed Acquisitions Ending in a Sale or Withdrawal at a Loss 80
4.1 Case Study 1: Matsushita Electric Industrial (Panasonic) 82
The Objective at the Time of the Acquisition 82
The Managers 83
The Post-acquisition Management and Its Challenges 83
The Consequences 85
4.2 Case Study 2: Yamanouchi Pharmaceuticals (Astellas Pharma) 85
The Objective at the Time of the Acquisition 85
The Managers 86
The Post-acquisition Management and Its Challenges 86
The Consequences 87
4.3 Case Study 3: Mitsubishi Motors 88
The Objective at the Time of the Acquisition 88
The Managers 89
The Post-acquisition Management and Its Challenges 90
The Consequences 91
4.4 Case Study 4: Renown 92
The Objective at the Time of the Acquisition 92
The Managers 93
The Post-acquisition Management and Its Challenges 94
The Consequences 94
4.5 Case Study 5: NKK (JFE) 95
The Objective at the Time of the Acquisition 95
The Managers 96
The Post-acquisition Management and Its Challenges 97
The Consequences 97
4.6 Case Study 6: JUSCO (AEON) 99
The Objective at the Time of the Acquisition 99
The Managers 99
The Post-acquisition Management and Its Challenges 100
The Consequences 102
4.7 Case Study 7: Dainippon Ink and Chemicals 102
The Objective at the Time of the Acquisition 103
The Managers 103
The Post-acquisition Management and Its Challenges 104
Consequences 106
4.8 Case Study 8: Asahi Glass 106
The Objective at the Time of the Acquisition 106
The Managers 107
The Post-acquisition Management and Its Challenges 108
The Consequences 109
4.9 Summary of All of the Failed Deals 109
Electrical Machinery 109
Chemicals 112
Medical and Pharmaceutical 113
Retail 114
Steel 115
Machinery 116
Glass 116
Nonferrous Metals 117
Transportation Equipment 117
Construction 118
Paper 118
Communications 118
Transportation 119
Food 119
Chapter 5: The Nature of Failure: Why Do Companies Fail in Overseas Acquisitions? 121
5.1 What Separates Successes from Failures in Overseas M& A?
Step ? Setting the Examination Conditions 123
The Target Selection at the Time of the Acquisition 123
The Post-acquisition Management 125
Step ? Validity Check: Verification Using the 51 Failures and 9 Successes 127
The Target Selection at the Time of the Acquisition 127
Management After the Acquisition 131
Step ? Specifying the Conditions that Affect Success or Failure 132
5.2 The Nature of Failure in Outbound Acquisitions 132
The Tunnel of Pitfalls 133
Combination of Factors 138
References 155
Part II: Ways of Fighting for Success 156
Chapter 6: Case Studies of Eight Successful Deals that Realized Sustainable Profit Growth After Acquisitions 157
6.1 The Idea at the Time of the Acquisition 157
The Managers 158
The Management and Challenges After the Acquisition 158
The Consequences 159
6.2 Case Study 1: Kuraray 159
The Idea at the Time of the Acquisition 159
The Managers 160
The Management and Challenges After the Acquisition 161
The Consequences 162
6.3 Case Study 2: Sumitomo Electric Industries 164
The Idea at the Time of the Acquisition 164
The Managers 165
The Management and Challenges After the Acquisition 166
The Consequences 167
6.4 Case Study 3: Ricoh 167
The Idea at the Time of the Acquisition 169
The Managers 170
The Management and Challenges After the Acquisition 171
The Consequences 173
6.5 Case Study 4: Ito-Yokado Group 174
The Idea at the Time of the Acquisition 174
The Managers 175
The Management and Challenges After the Acquisition 176
The Consequences 177
6.6 Case Study 5: Terumo 178
The Idea at the Time of the Acquisition 178
The Managers 180
The Management and Challenges After the Acquisition 181
The Consequences 183
6.7 Case Study 6: Japan Tobacco 184
The Idea at the Time of the Acquisition 184
The Managers 186
The Management and Challenges After the Acquisition 187
The Consequences 188
6.8 Case Study 7: Shin-Etsu Chemical 189
The Idea at the Time of the Acquisition 190
The Managers 191
The Management and Challenges After the Acquisition 193
The Consequences 195
6.9 Case Study 8: Toray Industries 197
The Idea at the Time of the Acquisition 197
The Managers 198
The Management and Challenges After the Acquisition 199
The Consequences 200
Reference 203
Chapter 7: A Model of M& A: Lessons from IBM’s Acquisitions and Divestitures
7.1 Why Learn from IBM? 204
7.2 10 Years of IBM 10 Years of Fujitsu (2002–2011)
7.3 Points in Common Between IBM’s Management and that of Japanese Companies 208
The Managers 209
A Strong Balance Sheet 209
Monozukuri (Manufacturing Excellence) 209
Growth After Restructuring 210
Acquisitions Around the Core Business 210
7.4 How Has IBM Realized Profit Growth? 211
Acquiring 130 Software Businesses for 30 Billion Dollars 211
Exiting Commodities Businesses 217
Long-Term Commitment by Top Management 222
7.5 The Three Key Approaches that Serve as Successful Lessons 224
Keep a Watchful Eye on the “Denominator” (Revenue Scale) 224
Acquire Companies to Create Business “Clusters” 225
10 Years of Strategy Commitment 226
Reference 228
Chapter 8: What Should Be Done to Succeed? 229
8.1 Due Diligence Is No Guarantee of Success 229
8.2 Where and with Whom to Fight After an Acquisition 232
8.3 What to Compete with After an Acquisition? 236
8.4 A Short-Term Decisive Battle or a Long-Term War? 240
Acquisitions to Buy Time 241
Time Required for Post-acquisition Management 243
Reference 244
Part III: Lessons from Failure and Success 245
Chapter 9: Three Lessons for Top Management 246
9.1 Lesson 1 247
The “Tunnel of Pitfalls” Is Waiting After the Acquisition 247
Pass on Deals in Which You Cannot Expect to Become a “Local Champion” 249
DD and PMI Are Tasks Only to Prevent Failure 251
9.2 Lesson 2 252
Do Not Be Bound by Achieving a Win-Win Outcome with the Domestic Business 252
Do Not Entrust the Target Company to Local Management 254
Implement Large-Scale Outbound Acquisitions Only Under a CEO Who Can Commit to Long-Term Management 256
9.3 Lesson 3 258
Redefine Your Business 258
If You Acquire One, Dispose of Another 260
Reference 263
Afterword 264
Acknowledgment 266
Appendix 267
References 273
Index 279