Brexit gives Japan Inc. Bargaining Ability on $23 Billion Outstanding Deals

A surprise is in store following UK’s Brexit for Japanese companies which have embarked on a $210 billion global acquisition spree over the past three years.

The purchasing power of local firms’ was boosted for deals abroad and potentially saving them hundreds of millions of dollars on purchases they’ve already announced as the yen soared on Friday to the highest in more than two years.

Date compiled by Bloomberg shows that among Japanese companies with a combined $23 billion of overseas acquisitions agreed to in the past 12 months that are still pending are NTT Data Corp. and Asahi Group Holdings Ltd.

With the Topix index falling on Friday by the most since 2011 and as export-driven corporate Japan braces for economic uncertainty, the unexpected windfall could offer a small silver lining.

While automotive supplier Exedy Corp. said it may consider moving its office out of the U.K., Canon Inc., the world’s biggest camera maker, warned that British voters’ decision to leave the European Union could undermine the economic recovery in Japan.

“It’s a bargain for those Japanese firms which have built cash in yen at home and have an acquisition deal in the works. The cost of their deals clinched in U.S. dollars and euros has gotten lower,” Makoto Shiono, a Tokyo-based partner at merger advisory firm Industrial Growth Platform Inc., said.

For the first time since 2013, Japan’s currency strengthened past 100 per dollar as it jumped as much as 7.2 percent, the most in more than three decades. Since the start of the year, it is now up 17 percent. Noting the most jump in intraday in more than seven years, the yen gained as much as 10 percent against the euro.

NTT Data’s $3.1 billion purchase of Dell Inc.’s technology services businesses is the biggest pending outbound deal from Japan. In March when the dollar was valued at about 113.45 yen, NTT Data, an arm of the former Japanese telephone monopoly, clinched the deal. Shaving about 44 billion yen ($430 million) off the local-currency price tag for the deal, the Japanese currency climbed as far as 99.02 yen at one point in Tokyo trading on Friday.

Anheuser-Busch InBev NV’s Peroni, Grolsch and Meantime brands was agrred to be bought by Asahi, the brewer of Super Dry lager, for 2.55 billion euros ($2.8 billion) in April. In February, when the euro was trading at about 128 yen, the Japanese beermaker agreed to acquire the brands.

At that point making the deal about 47 billion yen cheaper for Asahi in local-currency terms, the Japanese currency strengthened Friday to as much as 109.57 yen to the euro.

Some of the benefits for Japanese acquirers could be erased if the Bank of Japan intervenes in the currency market or the yen could weaken in coming days if market jitters subside. If the companies pay for them with foreign currency they hold or borrow offshore to fund the deals, the actual price of the purchases may not be affected.

Cash-rich Japanese companies have been involved in $66 billion of acquisitions this year including deals at home. According to Toshiro Takeda, a Tokyo-based principal at M&A consulting firm Mercer Japan Ltd, Japanese companies may need to take more time to examine how Brexit would affect the business prospects of overseas companies they’re targeting even as the yen’s strength gives companies greater firepower to make purchases abroad.

(Adapted from Bloomberg)


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