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Tokio Marine keeps a secret list of takeover targets.

Tokio Marine keeps a secret list of takeover targets.

Japanese companies are breaking new ground in global mergers and acquisitions (M&A). The total amount of their purchases of foreign companies surpassed ¥10 trillion ($84.9 billion) for the first time last year.

There is an essential difference between the latest M&A boom, the second since the years of the economic bubble before 1990, and the previous one in which Japanese companies went on a spare-no-expense shopping spree. This time, they aim to grow into world leaders through acquisitions.

A secret list has been making the rounds of the executive suite at Tokio Marine Holdings. The list, part of a brochure titled “Candidate firms under constant consideration,” contains detailed analyses of about 100 listed insurance companies around the world.

The brochure backs up the major nonlife insurer’s purchase of US-based HCC Insurance Holdings. The deal, which was announced last June, was the third-biggest cross-border acquisition by a Japanese company in the past three years. HCC is the bluest of blue-chip insurers.

Data in the brochure is updated by Kunihiko Fujii, managing director in charge of M&A at Tokio Marine.

Fujii was contacted last February by an agent, who told him, “HCC wants to meet with Tokio Marine officials.”

Fujii had talks with President and CEO Tsuyoshi Nagano on the day, and the issue was promptly discussed at a meeting of a small number of top executives. After Nagano had met with his counterpart at HCC the following month, negotiations between the two companies hummed along swiftly.

“M&A is a war of information,” said Fujii. His company has spent nearly ¥2 trillion on M&A involving foreign companies in the last nine years.

Note. Yen purchase prices converted into dollars based on exchange rate at time of purchase, percentages represent per-share premium over stock price of target company four weeks before acquisition announced SOURCE: THOMSON REUTERS

Note. Yen purchase prices converted into dollars based on exchange rate at time of purchase, percentages represent per-share premium over stock price of target company four weeks before acquisition announced SOURCE: THOMSON REUTERS

TAKEOVER TARGETS
Last September, Yasushi Shingai, vice president in charge of M&A at Japan Tobacco Inc., was busy traveling to attend ceremonies to sign acquisition agreements with Natural American Spirit ($5 billion) in the United States and Arian Tobacco Industry (purchase value not disclosed) in Iran.

“Now that Iran has struck a nuclear deal with the United States and Europe, the removal by the Western countries of economic sanctions against Iran is coming in sight,” said Shingai.

He and his M&A team keep 10 foreign companies under scrutiny as possible acquisition targets. They receive sales data of these companies from Japan Tobacco’s sales and marketing front line every day and calculate the corporate values of the companies based on their cash flows.

The nature of the latest M&A drive is different from that in the bubble era.

Nobumichi Hattori, visiting professor at Waseda Graduate School of Finance, Accounting and Law, calls Japanese companies’ international M&A activities since 2012 “the second M&A boom,” adding that “a race for the world’s No. 1 status” is the key word for understanding the boom.

The amount of premium paid over the stock price of an acquisition target that a Japanese company typically pays in an M&A deal has declined recently, compared with that of the bubble years. Some companies, such as DMG Mori, reject acquisitions with foreign companies, opting for mergers or business integration.

As funds in hand at Japanese companies have increased thanks to solid business results, they still have plenty of room for further advances in M&A.

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[Japanese companies] aim to grow into world leaders through acquisitions.