In Japan, appetite for deals duds can’t sour

TOSHIBA of Japan had big dreams for global expansion when it bought the US nuclear company Westinghouse 11 years ago. To make them come true, it seemed willing to pay almost any price.

At $5.4 billion – double initial estimates – the amount Toshiba paid to take control of Westinghouse took many aback. Japanese companies were known for splurging on foreign deals, then coming to regret it. Toshiba was put on the defensive from the start.

“I want to make this an example of a successful foreign acquisition,” said Toshiba’s chairman, Atsutoshi Nishida, who was all too aware of corporate Japan’s shaky deal record.

Nishida is long gone now, Japanese officials are openly discussing bankruptcy for Westinghouse, and Toshiba is fighting for its future. Botched foreign deals are a big reason.

Yet corporate Japan is on a buying binge. Overseas acquisitions have doubled in value over the past three years, as declining prospects at home propel previously inward-looking companies into foreign markets, where more famous names like Toyota and Honda have already made their mark.

The problem? Too many Japanese deals are duds, specialists in mergers say.

Some deals done years ago are now swamping Japanese companies with red ink. The failures point to a lack of accountability at the companies – and could portend more stumbles to come.

“There’s a sense that they have no other choice, that the only way to grow is though foreign acquisitions,” said Hideaki Miyajima, a professor at Waseda University in Tokyo. Desperate deal making, he said, is a natural response to problems in Japan’s economy – but one that can too easily backfire.

“When the president says ‘We’re buying,’ subordinates see it as their job to get a deal done, no matter what,” Miyajima said. “Even if it’s too expensive, no one stops it.”

Japanese businesses spent more than $100 billion on foreign takeovers in 2016, according to Dealogic, which tracks deal data.

Executives hope the investments will generate faster growth and higher profits down the line. But inexperience, recklessness and weak oversight by boards have led to missteps.

“Often there’s no one on the board who can oppose the president,” said Nobuo Sayama, a former investment banker. “As a result, companies pay absurd amounts of money, or they mismanage the acquisition afterward.”