TOKYO -- In the late 1980s, a Texas oilman named T. Boone Pickens sent shivers down Japan Inc.'s spine when he tried to get a seat on the board of
, a car parts maker in which he bought a 26% stake. Nobody knows if Pickens, who already had a reputation as a corporate raider, really wanted a say over management or just a little greenmail.
In the end, Pickens got neither. After a two-year battle with then-largest shareholder
, the oil baron sold his stake, shook the dust from his spurs and headed back to Texas, cussing out Japanese management techniques and capitalism as he went.
A decade later, foreign investors who want a piece of corporate Japan aren't finding it necessary to launch into a string of expletives. Ten years of economic downturn is breaking down traditional resistance to overseas involvement. Last year, the U.K.'s
Cable & Wireless Communications
wrested control of telecom carrier
in two months. Last week, Germany's
secured a 35.9% stake in domestic drugmaker
only a month after announcing its takeover intentions. Perhaps the most widely known foreign invasion:
purchase of a controlling stake in ailing auto giant
and the subsequent installation of Brazilian Carlos Ghosn as CEO of the Japanese company.
M&As have only just started cooking in Japan, where big corporate backers have traditionally cemented relationships with smaller partners by taking equity holdings in them. Last year a record 1,169 mergers -- valued at $78 billion -- helped push the
index 37% higher. Foreign interests accounted for $24.4 billion of that figure. Two or three years from now, analysts reckon, that will look like chump change as overcrowded, uncompetitive sectors like retail, pharmaceuticals, securities, construction, electronics, broadcasting and regional banking see wave after wave of consolidation.
"Look what happened last year: A Brazilian took over Nissan," says James Bogin, fund manager for the $25 million
Matthews Japan fund. "Japan doesn't have a choice. It's change or die."
Bogin has been buying shares in nationwide TV network
and mid-tier brokerage
, two firms in sectors he expects will see more M&As. That helped his fund climb 108.3% over the past year. Similarly, the
Warburg Pincus Japan Small Company fund has bet on consolidation in the electronics sector. The $889 million fund, which has more than a quarter of its assets in electronics and electric component makers, is up 263% over the year.
Investors, foreign and domestic alike, are scouring Japan for the next good buy. Consultants
recently published a report of companies it deems bargains that are listed on the
Tokyo Stock Exchange's
first section, the equivalent of the
New York Stock Exchange's Big Board
. Moriyama used the M&A ratio, which measures how many years it takes to recoup takeover investments by comparing cash flow in relation to stock price. Companies with large cash flow, like ladies apparel maker
, boiler manufacturer
Maruichi Steel Tube
, a maker of steel tubes, topped the list.
"Takeover targets will have a lot of cash reserves on their books. That means management is not buying back shares or using that money to invest in its business," says Hidehiro Tomioka, director of investments at
Invesco Asset Management Japan
. Tomioka, whose $629 million
New Frontier Open
fund is up 120% over the past year, predicts
Takeda Chemical Industries
and Toyota Motor could also be takeover targets because of their large cash positions.
On April 1, M&A activity will get a boost from the government, which has directed companies to use mark-to-market accounting as part of a broader deregulation program. This technique will help investors assess more accurately how profitable -- or in much of Japan's case, unprofitable -- some of the assets on Japan Inc.'s books really are.
Investors are lining up.
E.M. Warburg Pincus
Patricof & Co.
are actively building their war chests. A total of nearly $13 billion has already been collected for takeovers by some estimates. That's probably just the tip of the iceberg; many investors have yet to publicize their intentions.
Still, reluctance to change is evident.
, a smallish Japanese investment firm, was rebuffed in its hostile bid for
, a real estate and electronic parts maker. Last week, MAC conceded defeat when it couldn't convince major shareholders Canon and
to relinquish shares. The problem wasn't that MAC didn't have a convincing business strategy. Rather, Shoei is part of the
, or business conglomerate. Although cozy relations between conglomerate members are waning, members own each other's shares and help support each other through tough times.
"There still remains the ethical dilemma for many firms to forgo ownership. That would be like admitting one manager is better than the other, which the Japanese don't openly admit," says Takahiko Kanoh, CEO of
, a M&A consultant.
The dilemma is not stopping Kanoh from fielding calls from blue-chips, as well as small and midsize companies. They're asking him for advice on where to find potential targets and how to fend off unsolicited approaches.
In the future, Japanese firms are going to have less say in who their owners will be. Perhaps Pickens is getting ready to ride back into town.