Schincariol is not Japan Inc’s first brush with tough acquisitions.
Three years before Kirin, the Japanese beer group, swooped on Brazil’s trailing number two brewer Schincariol, Daiichi Sankyo made a similarly bold bet.
Japan’s third-largest pharmaceutical company bought control of Ranbaxy Laboratories, India’s biggest generic drugs maker, in a cash deal worth Y490bn. Months later Daiichi was forced to take a Y359.4bn writedown, after the Indian company’s share price halved following the financial crisis and problems with US regulators. Ranbaxy’s share price still languishes at Rp520.05, sharply below the Rp737 paid by the Japanese company.
Like Schincariol, Ranbaxy’s problems were flagged from the outset – a Food and Drug Administration investigation was ongoing when Daiichi signed off on the deal. Also like the brewing acquisition, Daiichi opted to forgo full ownership and wrote a handsome cheque.
These two examples raise questions over Japanese M&A strategy in new markets where the suitors have little experience.
The need to buy access to overseas growth amid bleak prospects at home is a good reason for Japan’s mounting outbound M&A even if it involves “near term” compromises, says Peter Kenevan, a principal at consultancy McKinsey in Tokyo. But there are lessons to be learned.
“There’s no doubt that Japanese companies could be better at due diligence, deal structuring and more effective in using advisers,” Mr Kenevan says. “They tend not to have specialised teams with someone from banking or consulting, as is likely to happen in a big western company.”
The tendency to overpay without securing full ownership and repent at leisure has a long history. Most famously, NTT DoCoMo, the telecoms operator, lost billions of dollars at the turn of the century from acquisitions that included minority stakes in KPN Mobile of the Netherlands and AT&T Wireless in the US, when the technology bubble burst.
The company now appears to be taking a similar strategy in Asia, with acquisitions including a 26 per cent stake in Tata Teleservices.
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