ECONOMIC SPOTLIGHT - JAPAN BUYING OVERSEAS FIRMS
More U.S. And European firms will be
falling prey to Japanese corporations bulging with cash and
eager to extend their reach further overseas, according to
merger and acquisitions specialists polled by Reuters.
    Already, rich Japanese companies have pounced on U.S.
Banks, steel and other businesses.
    In the latest attempt, Fujitsu Ltd <ITSU.T> -- Japan's
biggest computer maker -- unsuccessfully bid for <Fairchild
Semiconductor Corp>, a U.S. Microchip maker which supplies
components for supercomputers.
    Nomura Securities Co Ltd <NMSC.T> and Daiwa Securities Co
Ltd <DSEC.T>, Japan's two largest brokerage firms, are seeking
a niche in the U.S. And European securities markets, while the
country's huge banks are looking for strongholds in overseas
banking, the takeover specialists said.
    Major trading houses, which see their profits evaporating
in the heat of increased competition in merchandise trade, all
have foreign businesses on their shopping lists.
    Among manufacturers, car parts makers are under the most
pressure to buy up overseas companies and follow the big auto
makers they subcontract for as these move offshore.
    "The timing is favourable for Japanese parties to buy up
potential overseas businesses, especially in the U.S. --
Japan's largest market and where political risks are minimal," a
takeover specialist at one trading company said.
    Japanese companies have become among the world's richest
after a series of boom export years and as the yen has climbed
against the dollar by some 40 pct in the past 18 months.
    But the yen's strength, which has also raised the costs of
Japan's exports and allowed its Asian neighbours to move into
its traditional markets, has frozen Japanese corporate growth,
the specialists said.
    Looming trade friction is also threatening to erect more
barriers against Japanese exports.
    Japanese firms see overseas acquisitions as a way to avoid
the gloomy growth outlook and put their excess cash to work.
Domestic interest rates, now at record lows, offer little
investment opportunity.
    "Japanese interest in acquisitions has been continuous, but
the recent economic factors have become a driving force," said a
banking industry source.
    So far, though, the Japanese are being cautious.
    While mergers and acquisitions among U.S. Firms number in
the thousands, Japanese buyouts of overseas companies have
totalled just a few dozen, one merchant banker said.
    Another merchant banker said that a flurry of Japanese
acquisition activity was originally expected five years from
now, but that time span appeared now to be too long.
    Japanese firms are becoming more aggressive now, he said.
    A turning point seemed to be Dainippon Ink and Chemicals
Inc's <DIAC.T> takeover bid for <Sun Chemical Corp> of the U.S.
Last year, which some analysts saw as somewhat hostile, he
added.
    Dainippon Ink bought Sun Chemical's graphic arts group for
550 mln dlrs late last year, after an earlier unsolicited bid
for the whole company. Sun Chemical refused to sell its entire
business after learning that Dainippon planned to liquidate all
but its graphic arts-related businesses.
    Hostile takeovers are considered unethical and frowned upon
by the Japanese, the trading company official says. "Japanese
people don't like fighting. They prefer peaceful amicable
deals." But now after some experience overseas, Japanese
companies are acquainted with local practice, he adds. "This is
a healthy progression."
    However, the experts do not expect the Japanese to run the
board meetings of any giant U.S. Or European concerns.
    "Japanese companies are not fully confident in managing a
large U.S. Or European corporation," one banker said. "They will
expand their operations only gradually, a typical way for
Japanese business."
    A foreign merchant banker also noted, "There are not many
mega-deals left to do in the United States. A lot of the big
deals there have already been done."
    But medium-size and small concerns are potential targets of
Japanese companies, the specialists said.
    Japanese will be aiming for new businesses in
high-technology areas. "Japanese companies had used technology
and quality to get where they are and are unlikely to deviate
from that trend," one takeover specialist said.
    Many are watching the results of the first acquisitions. If
these succeed, activity could build, the specialists said.
    But few such specialists are going to sit back and wait
until the action begins. Already, they said, Japanese trading
houses, long-term credit and commercial banks, brokerages and
foreign merchant banks have set up research sections to act as
go-betweens in deals or find good buys for themselves.
 REUTER
