Japanese Takeovers: The Global Contest for Corporate Control

A penetrating analysis of the reasons for Japanese financial hegemony in the 1980s.

Category: Banking & Finance

Of Interest:

A Not-So-Tender Offer

Mergers and Acquisitions: Issues from the Mid-Century Merger Wave

Takeover: The New Wall Street Warriors: The Men, the Money, the Impact

Taking America: How We Got from the First Hostile Takeover to Megamergers, Corporate Raiding and Scandal

The Corporate Merger

The Titans of Takeover

Transnational Mergers and Acquisitions in the United States

In the late 1980s Japanese corporations took over a number of prominent American companies. Thanks to competitive successes in the global product market and their unopposed access to global capital markets, the Japanese were loaded with cash, becoming formidable players in the new global contest for corporate control. In Japanese Takeovers, W. Carl Kester provides an explanation of Japanese merger and acquisition activity, with analysis of the economic logic that underlies the system. Giving a fresh interpretation of Japanese behavior in the global market, Kester builds a compelling new paradigm of Japanese corporate governance that surpasses simplistic cultural explanations and deflates old myths.

Kester's "Japanese Takeovers" revisits the wave of Japanese takeovers of large foreign corporations in the 1980s, including many American businesses. At the time, there was concern among economists, businesspersons, and government officials about not only the economic consequences, but also the political consequences. In taking over major American corporations, some of them identified as flagships of the American economic system, many felt that a part of America was being lost. Japanese control of large American businesses also raised concerns about Japanese influence over politicians and considerations about the communities where the businesses were located. These concerns were for the most part dispelled with the new life Japanese cash and management brought to many corporations and Japanese sensitivities to the situations of employees and their families and communities. Yet these same economic, political, and social concerns continue to be raised with regard to the business activity in the globalization gaining strength in the years following the Japanese takeovers that attracted worldwide attention and scrutiny. In historical hindsight, Kester sees the Japanese takeovers as the initial stage of the globalization before long to involve large corporations from countries around the world; not only the United States, but the European countries of Britain, France, and Germany, and Middle Eastern countries wealthy from oil.

Kester delves into the sources of the Japanese corporations' desires and abilities to take over large businesses in foreign countries. He sees also how this takeover activity signaled shifts in the outlooks and operations of corporations. The interrelated, central matters of stakeholder expectations and the ambitions and plans of corporate heads and top executives were transformed in these early years when Japanese firms were demonstrating in a national, yet widely influential way what globalization was, how it worked, and what it meant for the world. Finally, the author brings the ambivalent effects of the Japanese takeover activity to light.

Kester focuses on "tying together the struggles among major groups of corporate stakeholders (shareholders, lenders, employees, suppliers, customers, and so forth) with merger and acquisition activity." In was in these struggles that the orientation of large corporations was changed. No longer did they try to be simply leaders in their industry, or develop images linking them to specific products or services. Instead, Japanese corporations and others following in their steps looked at the entire world as the field for their development, growth, and extension of their corporate name and influence. Many Japanese corporations became known for their takeover activities more than their products or services.

Such changes in the orientation of the Japanese corporations forging the trail in foreign takeovers entailed numerous interrelated changes in all areas of a corporation and also changes in economic principles and concepts. Cash is but one of these economic factors Kester assesses. After the "period of adjustment" following the oil shocks on the 1970s, there was "the emergence in Japan of a manufacturing sector that has substantial cash flow relative to its needs." Along with this, there was "the much reduced monitoring of [such companies'] entrenched managers." In these circumstances, cash began to be "deployed in ways that have little bearing on the achievement of product market competitiveness or parity growth in the value of stakeholder claims." Japanese manufacturing firms were pursuing "diversification plans" unrelated to their traditional business activities and outside of the fields they were established in.

Kester interviewed more than 40 top executives in 15 different Japanese firms. Included in these were the well-known companies Hitachi, Mitsubishi, and Toshiba. Banking and financial services are also found in the list (contained in the appendix). Kester included material from the financial institutions primarily for a perspective from institutions which were helping the large Japanese manufacturing companies with the capital for their takeovers plans. Even though Japanese foreign real-estate takeovers are not included, the "field sample is comparatively large" and relevant in that it deals with the main area of Japanese takeover activity. This activity, now summed up in the term globalization, marked the beginnings of a new era in economic history. This author's systematic study of Japanese corporations ushering in this new era offers a comprehensive understanding of the globalization which has come to be the dominant economic activity of today.

With the Harvard Business School since 1981, W. Carl Kester teaches finance in its MBA and Executive Education Programs. He has written extensively on Japanese corporate finance and strategic resource allocation.

This volume contains papers presented at the Second International Workshop on Japanese Syntax, held at Stanford University in March 1986. The topic of syntax is broadly construed as covering discourse phenomena and the interface between morphology and syntax. No index. By exploring the cultural history and economic logic underlying business relationships in Japan, Kester provides a fresh interpretation of Japanese behavior in the global market. Annotation c. Book News, Inc., Portland, OR (booknews.com)

Acquisitions by Japanese corporations are on the rise, a dramatic departure from their traditional aversion to such activity. Loaded with cash, they are formidable players in the new global contest for corporate control. Are the Japanese about to engage in a wave of aggressive corporate takeovers, or are they more likely to act merely as "white samurai" in battles initiated by others? Will their growing familiarity with the mergers-and-acquisitions business lead to more takeovers inside Japan itself and give Western companies a realistic shot at acquiring a Japanese corporation? By exploring the economic logic underlying business relationships, Japanese Takeovers provides a fresh interpretation of Japanese behavior in the global market. Carl Kester argues there has not been an active market for corporate control in Japan because Japanese companies prefer to build and manage long-term relationships with other firms rather than own those firms' corporate assets. This is true even overseas. Japanese cross-border takeovers have been triggered more by the need to defend valuable business relationships than by their tremendous bidding power. Current trends will further integrate Japan into the global market for corporate control and increase Japanese use of Anglo-American takeover tactics. But successful M&A deal-making with Japanese use of Anglo-American takeover tactics. But successful M&A deal-making with Japanese corporations will hinge more on extensive knowledge of the history and current status of relationships among various stakeholders than on financial acumen. It is imperative that foreigners wishing to be significant players in the Japanese market understand the economic purpose behind the subtle but powerful ties among Japanese corporate stakeholders.

Throughout the 80's and the early '90s, a deeply ingrained myth existed in the American collective psyche that believed that; Japanese corporations, in collusion with Japanese government were bent over to control the US and world economy. A series of economic events further encouraged and fortified this belief. Among these events were financial success of Japanese corporations during a concretionary period in the US, followed by a series of acquisition of US companies by Japanese including some national cultural icons, the ever burgeoning US trade deficit and National debt, and the consistent complaint of US business leaders about the un-receptiveness of the Japanese economy to outside competition and acquisition. W.C Kester, attempts to answer few fundamental questions relevant to the Japanese M&A activity. The questions he attempts to answer include; Should nations be threatened by Japanese M&A activity? Should the Japanese be more proactive in opening up their system so that others gain access to M&A activity in Japan? What should policy makers and policy makers of other countries do about the issues? The search for these answers leads him into a complete analysis of the Japanese corporate governance system, which he defines as "the overall mechanism that coordinates the activities of Japanese corporation's various stakeholders such as lenders, shareholders, managers, employee, suppliers and customers". Through ahistorical case study of a company, he demonstrates how this system has evolved separate from the western culture and in the process enmeshed and optimized itself to and with the Japanese culture. He then discusses primary factors of this corporate governance mechanism which are; implicit contracting based on trust; reciprocal shareholding and implicit trading agreements between stakeholders; Management incentives based on overall growth rather than transfer of value between stakeholders and; Financial institutions as stakeholders and their early, selective power of active intervention. It becomes obvious to the reader, how an interwoven structure such as this makes redundant the need to acquire each other while; layers of cultural barriers make the system impermeable to foreign acquirers. The time series/case approach of the first part of the book puts the reader in touch with the origin and the reason behind the Japanese corporate culture. The subsequent few chapters use cases to demonstrate the amicable nature of mergers between Japanese companies; a characteristic that crosses borders when Japanese companies merge with foreign companies. The book then shifts to what the future of Japanese corporate governance will evolve to. Driving factors such as scarcity of growth opportunities, widening objectives among stakeholders, primarily between lenders and managers and, the increase in the inflow of global capital with differing objectives than the existing culture as three primary reasons for future trend changing forces. Greenmailing is a result of the conflict between efficiency concerned financial institutions and cash rich corporations who have been less needy of banks. Buttressed by financial deregulation, international trading and indeed Japan's very success; ensuing Global flow of capital has forced Japanese financial institutions to compete by international standards of capital. Thus, capital is setting Japan's future trend and is demanding shorter term and higher returns. As this happens other stakeholder relationships will have to be redefined; especially the company employee lifetime employment relationship will be challenged. The book was written in 1991 and was forecasting future trends. Off course reviewing this book in 2000, gives us the advantage of assessing the forecasted trends. So much has changed to the Japanese economy since then. Some of the large financial institutions were liquidated and or were acquired by foreign companies. Lifetime employment has become a thing of the past. The system so heralded as the most in the '80s and early '90's has been forced to go into major restructuring. The after effects of the shock still subside. A nation so used to permanent job security, faced with the unfolding events has grown so pessimistic as to drastically curtail consumption thus propelling the economy to an extended period of recession.

W. Carl Kester, teaches finance in Harvard Business School's MBA and Executive Education Programs. He joined the Harvard faculty in 1981, where he currently serves as Senior Associate Dean and Chairman of the MBA Program. He has published widely on Japanese corporate finance and strategic resource allocation. He was awarded the 1987 O'Melveny & Meyers Centennial Grant in support of his research for this book. Photo from the Harvard Business School website.