Corporate Japan Is on Foreign Buying Spree. Toshiba Shows Pitfalls.


Yet corporate Japan is on a buying binge. Overseas acquisitions have doubled in value over the past three years, as declining business prospects at home propel previously inward-looking companies into foreign markets, where more famous names like Toyota and Honda have already made their mark.

The problem? Too many Japanese deals are duds, specialists in mergers and acquisitions say.

Some deals done years ago are now swamping Japanese companies with red ink. The failures point to a lack of accountability at the companies — and could portend more stumbles to come.

“There’s a sense that they have no other choice, that the only way to grow is though foreign acquisitions,” said Hideaki Miyajima, a professor in the commerce department of Waseda University in Tokyo. Desperate deal making, he said, is a natural response to problems in Japan’s economy — but one that can all too easily backfire.

“When the president says ‘We’re buying,’ subordinates see it as their job to get a deal done, no matter what,” Professor Miyajima said. “Even if it’s too expensive, no one stops it.”

Known for splurging on trophy assets in the 1980s, Japanese companies today are buying up foreign names for a different reason: Their country’s population is shrinking and aging, and consumers are no longer spending the way they used to. Department store sales and supermarket sales have declined. Beer sales have fallen by nearly half since 2001.

Desperate for new customers, Japanese businesses spent more than $100 billion on foreign takeovers in 2016, according to Dealogic, which tracks deal data. That was close to a record; measured in yen rather than dollars, it was the most ever.

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Westinghouse employees in 2006 with fans commemorating the Toshiba deal.

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Jeff Swensen/Getty Images

Executives hope the investments will generate faster growth and higher profits down the line. But inexperience, recklessness and weak oversight by corporate boards have led to past missteps.

“Often there’s no one on the board who can oppose the president,” said Nobuo Sayama, a former investment banker who has advised both Japanese acquirers and foreign targets. “As a result, companies pay absurd amounts of money, or they mismanage the acquisition afterward.”

Toshiba is hardly alone.

Kirin, the beer maker, bought a string of breweries overseas, including Brazil’s second-largest brewer, Schincariol, for a total of $3.9 billion in 2011. Last month, it sold business to Heineken for $700 million.

“It was gut-wrenching, but we had to drain the wound,” Kirin’s chief executive, Yoshinori Isozaki, said in 2015 after booking a $1 billion loss on the investment. He added: “Overseas strategy is very difficult.”

Rakuten, Japan’s biggest e-commerce site, wrote off most of its 2010 purchase of a French online retailer last year. Marubeni, a major Japanese trading house, wrote down its 2013 acquisition of the Gavilon Group, an American grain trader.

Such is the reputation of Japanese companies for overpaying that when Olympus, the camera maker, intentionally inflated the price of a British acquisition by almost $700 million in 2008, it set off few alarm bells. “Investors just thought, there they go again,” Professor Miyajima said. Three years later, it emerged that Olympus had used the deal to facilitate an accounting fraud.

Many takeovers fail. And it is difficult to say exactly how much Japanese companies overpay for their targets, since valuations can be subjective and information on smaller deals is not always disclosed.

Still, Japanese buyers do seem unusually generous. According to Dealogic, from 2014 to 2016 they paid 40 percent more on average than their target companies were valued by stock markets. That compares with a 29 percent premium paid by American acquirers in comparable deals.

Bain & Company, a merger advisory firm, found that Japanese buyers ended up writing down the value of an acquisition or selling it under financial pressure in around 40 percent of cases — an unusually high rate. Junya Ishikawa, a partner at Bain, said bosses often leapt at what they saw as “game-changing, once-in-a-lifetime deals” and ended up in over their heads.

And at sprawling conglomerates like Toshiba, whose chief executives rise through the ranks and serve for only a few years, bosses control mountains of cash and feel they must use it quickly to create a legacy.

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Satoshi Tsunakawa, Toshiba’s president, said the company was investigating why liabilities went unnoticed in a Westinghouse deal.

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Toru Hanai/Reuters

“Shareholders ask executives why they’re holding on to so much cash, and they say they’re thinking about M&A deals,” said Mr. Sayama, now a professor at Hitotsubashi University. “Then investment bankers come calling with proposals.”

At Toshiba, a shopping spree that spanned a decade has come back to haunt it. Soured takeovers played a central role in a damaging accounting scandal two years ago, which led to the resignation of the chief executive, and a startling $6.3 billion write-off last month, which forced out the chairman.

On Friday, Japan’s finance minister, Taro Aso, said Westinghouse needed to decide by the end of this month whether to seek Chapter 11 bankruptcy protection in the United States. Toshiba faces a March 27 deadline to publish its latest assessment of its finances, and what happens to Westinghouse will be crucial. If Toshiba misses the deadline, it could be delisted from the Tokyo Stock Exchange.

Toshiba declined to comment on any deliberations, saying it was a matter for Westinghouse and American authorities, but it did say on Tuesday that it was “actively considering” a sale and other strategic options for the unit.

Executives say unforeseen obstacles like the Fukushima nuclear disaster and the rise of shale gas production in the United States have shaken the atomic power industry.

In seeking to build nuclear power plants in the United States, Toshiba was working hand in hand with the Japanese government, which has been keen to develop new markets for Japanese infrastructure technology. Tokyo offers low-interest financing, in the form of loans and loan guarantees from the state-owned Japan Bank for International Cooperation, to companies including Toshiba that take on such projects. Critics say government support can lead companies to ignore economic risks.

The bank declined to comment on loans to specific companies.

Toshiba sought to resolve its Westinghouse problem by buying an American construction company, Stone & Webster. The company was a contractor on two Westinghouse nuclear-power projects, in South Carolina and Georgia, that are years behind schedule and billions of dollars over budget.

Satoshi Tsunakawa, Toshiba’s president, said at a news conference last month that Toshiba had approved the acquisition in the hope that, by taking direct control of Stone & Webster, Westinghouse could reduce cost overruns. Instead, the takeover made things worse: Stone & Webster was facing billions of dollars in liabilities.

Mr. Tsunakawa said Toshiba was investigating how Westinghouse and its advisers failed to spot the liabilities when deciding how much to offer Stone & Webster’s owner, the engineering group Chicago Bridge & Iron Company.

Mr. Tsunakawa did little to rebut another common criticism of Japanese acquirers — that they rely too much on outsiders’ assessments of what businesses are worth, without doing hard-nosed examinations of their own.

“C.B.&I. gave us the documentation,” he said, “and we believed it.”

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