January 6, 2009
By YUKA HAYASHI
TOKYO -- Japan's cash-rich trading companies, such as Marubeni Corp. and Itochu Corp., are on the hunt for bargain acquisitions outside Japan, seizing the opportunity to expand abroad while
the stronger yen makes purchases cheaper and potential competitors are sidelined by the credit crisis.
The conglomerates, which do everything from develop oil fields in Russia to import designer
handbags to Japan, have been active in mergers and acquisitions. Japanese companies in total
spent $77.8 billion last year on acquisitions outside Japan, more than triple the amount spent in 2007 and exceeding the previous annual record of $52 billion set in 2006, according to market data provider Dealogic.
"Hard times often come hand in hand with opportunities," said Teruo Asada, president and chief
executive of Marubeni, Japan's fifth-largest trading company by market cap. "For healthy
Japanese companies, this is truly an excellent chance to plant the seeds for the future."
Investment bankers expect acquisitions to continue this year, although the pace may slow as
companies become more cautious on prices.
For companies from other major nations, 2008 was a slow year. U.S. companies, for example,
spent $188.6 billion on acquisitions of non-U.S. companies, down 26% from 2007. Those in the
U.K. spent $101.8 billion, down 67%, according to Dealogic.
Japanese companies are in a strong position to make overseas acquisitions for a few reasons.
After years of restructuring, Japanese firms are sitting on about $1.25 trillion in cash.
In addition, the companies' purchasing power has increased as the yen rose about 25% against a
basket of currencies in 2008, while falls in the global markets have meant shares of many
potential targets have dropped.
Marubeni and Osaka Gas Co. are considering jointly investing in an electricity and water project
in Abu Dhabi after French energy giant GDF Suez SA failed to secure enough funding from
European banks to finance the project, according to Mr. Asada.
Two of the most acquisitive trading companies have been Marubeni and Itochu. Marubeni, a 150-
year-old company that started as an Osaka kimono merchant, conducted 13 M&A deals in 2008,
including the purchase of a power company in Singapore, copper mines in Chile and a service
provider for steel mills in Pittsburgh, according to Dealogic.
Marubeni Corp.
Teruo Asada, president and chief executive of Marubeni
In the current fiscal year ending March 31, Marubeni expects to spend 320 billion yen to 330
billion yen ($3.5 billion to $3.6 billion) in new investment, Mr. Asada said, compared with 300
billion yen in the previous fiscal year.
Mr. Asada said Marubeni's acquisitions are usually made in areas where the company already
has expertise, such as energy, commodities, food and machinery. And rather than sending
bankers out to identify potential acquisitions, Marubeni usually finds opportunities through its
existing business relationships.
The CEO said Marubeni has set aside 600 billion yen for new investments for the two-year period
ending March 31, 2010, which is about the same amount spent in the previous two-year period.
Despite the sharp slowdown in the global economy, the company has no plans to reduce its
spending, Mr. Asada said.
Itochu, Japan's fourth-largest trading company by market cap, in November spent $710 million for
a 20% stake in Chinese food distributor Ting Hsin Holding Corp. After large deals in late 2008,
including several in energy and mining industries, Itochu could end up shelling out as much as
$4.4 billion by the end of the fiscal year in March, the company said, exceeding its plan at the
beginning of the fiscal year to spend about $2.7 billion.
There are risks in the trading companies' aggressive strategy. Marubeni's Mr. Asada says the
operating environment for the company has rapidly deteriorated in recent weeks as the sharp
drop in oil and commodities prices pushes down its revenue, though it hasn't yet altered its profit
forecast for the fiscal year ending in March.
A global slowdown will mean lower revenues overall, and a higher yen, while making foreign
investments cheaper, will reduce the companies' overseas profits when converted back into yen.
Japanese lenders, which were relatively sheltered from the global credit crunch until recent
months, have started to tighten access to credit. The volume of acquisition financing fell by twothirds
in the final three months of the year and was down 8% year on year.
Food manufacturers and other companies who sell mainly to Japanese consumers are most able
to wear the effects of the economic downturn and are most likely to continue making acquisitions,
said Masaru Shibata, head of M&A in Japan for J.P. Morgan Chase & Co.
Many consultants and advisory firms are keen to help the Japanese manage companies abroad
effectively. One such firm is regional fund, Barings Private Equity Asia K.K., which is hoping to
invest jointly with Japanese companies or sell them companies.
"Japanese firms have approached us to talk about buying two of our portfolio companies in
South-East Asia. The Japanese seem to be one of the few groups of active buyers out there,"
said Barings' managing partner Jean Eric Salata.
Marubeni, for its part, says it will continue to look for new investments in growing industries in key
regions. In Asia, infrastructure businesses like electric power, transportation and water treatment
offer opportunities because these are areas in which demand is growing and where Marubeni can
make use of its expertise.
"The U.S. has shown lots of flexibility in implementing monetary and fiscal policies" to help prop
up its struggling economy, Mr. Asada says. "When their effects kick in and the economy begins to
recover, the markets in the U.S. will be very attractive."
—Alison Tudor contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
