Japan Inc.

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The check is literally in the mail for Toll

Holdings, after Japan Post agreed to pay A$6.5
billion ($5.02 billion) for the Australian
logistics company. But after a wave of billiondollar overseas investments by Japanese
companies, analysts say the move may not be the last as Japan Inc. punts on overseas growth.
On February 18, Tolls board recommended to shareholders a takeover by the Japanese postal,
banking and insurance giant, valuing Toll shares at 49 percent more than the previous days
market close and setting a new record price for a Japanese takeover of an Australian company.
Stating that its acquisition was key to Japan Post becoming a leading global logistics player, Toll
chairman Ray Horsburgh said in a statement: Japan Post is one of the worlds leading postal and
logistics companies and Toll is the largest independent logistics group in the Asia Pacific.
Together, this will be a very powerful combination and one of the worlds top five logistics
companies.
Japan Posts president Toru Takahashi reaffirmed the state-owned companys new ambitions,
saying: We believe the combination of Japan Post and Toll will be a transformational transaction
for both our companies and we are very pleased we have been able to reach agreement. In
partnership with Toll we are starting a new chapter of looking outward and becoming a leading
global player.
Despite being leaked to the Australian Financial Review late on February 17, the deal stunned
market watchers, being the largest overseas takeover of an Australian company since SABMillers
$13 billion takeover of brewer Fosters in 2011.
No one was expecting a bid and if they were they werent expecting that sort of magnitude, IGs
Chris Weston told Bloomberg. If youre a shareholder today, youre going to be fairly
speechless.
Tokyo-based Japan Post has annual revenue of A$30 billion and nearly 200,000 employees in
Japan, dwarfing Toll, which posted revenue of A$8.8 billion in the year to June 2014, with
40,000 staff in more than 50 countries.

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Yet Japan Post trails its international competitors, led by Germanys Deutsche Post with annual
revenue of 7.4 trillion yen, and U.S.-based UPS with 6.9 trillion yen, with Tolls acquisition set to
move it from eighth to fifth-largest worldwide.
Founded in 1871, Japan Post is part of a holding company with banking and insurance arms that
collectively earns nearly A$163 billion in annual revenue. While its privatization was a goal of
former Prime Minister Junichiro Koizumi a decade ago, the group is finally set to go public this
fall in an initial public offering likely to raise up to 2 trillion yen, helping to reduce government
debt.
Japan Post said the Toll acquisition, expected to be completed by June, formed part of plans to
reinforce its domestic operations while focusing on the fast-expanding Asian market as part of
efforts to grow as a comprehensive international logistics company.
The postal giant has already formed tie-ups with Frances GeoPost and Hong Kongs Lenton
Group, but it noted Tolls strong presence in the Asia-Pacific region, where it derives about a fifth
of its revenue.
More acquisitions are likely for Japan Post, which noted its shrinking domestic postal market
amid a declining population and growing reliance on the internet.
Japan Post would draw on Tolls extensive M&A [merger and acquisition] expertise and global
management acumen to step up M&As throughout Asia, Europe and North America to become a
global logistics leader, it said.
Importantly, the inclusion of Toll would reduce Japan Posts reliance on postal services, which
would shrink from 64 percent to 49 percent of total revenue, while adding new revenue sources in
freight forwarding, logistics and express, it said.
While the takeover is subject to shareholder and regulatory approval, Australian Trade Minister
Andrew Robb welcomed it as a major vote of confidence in the future of the Australian
economy.
This offer represents a massive endorsement of Australian skills, services and expertise and
underlines the strategic importance of Toll in the Asia-Pacific, and provides an ideal platform to
spearhead Japan Post and Tolls global ambitions, Robb said in a statement.
It is also a vote of confidence in future freight demand, including anticipated growth of trade
flows throughout the region, which will be underpinned by our recently concluded landmark free
trade agreements with [South] Korea, China and of course Japan, he added.
Threat To Services?
However, Australias state-owned postal service Australia Post fired back, saying it would
threaten vital services.
If these competitors are allowed to cherry-pick the most profitable parts of our business with no
obligations to regional or rural Australia, whos going to take care of regional and rural Australia
if Australia Post is not around? Australia Post chief executive Ahmed Fahour said.

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Australia Post recently announced its first annual loss due to a continued slide in letter volumes,
with increased retail freight from online shopping unable to cover the difference. Japan Post is
also expecting a net loss this fiscal year from its postal unit, with mail deliveries in 2013 down 30
percent on the peak year of 2001.
Japans NHK News noted that the organizations move abroad would expose it to stiff
international competition, and the road will certainly not be smoothJapan Post is under a legal
obligation to provide a universal service to the population of Japan, delivering letters and
postcards to every part of the country. If this huge investment was to be lost in future, the
domestic service might find itself in difficulties.
The Nikkei also pointed out that the takeover premium offered by Japan Post was above the 35
percent offered by Japans Dai-ichi Life Insurance for U.S. insurer Protective Life, or Suntorys 25
percent premium for U.S.-based Beam.
We are buying the time we would have spent for growth, Japan Post president Taizo Nishimuro
explained at a media conference.
Buying Spree
Despite a weakening exchange rate, Japanese companies have recently embarked on a global
buying spree, helped by stronger Tokyo stock prices and encouraged by analysts to deploy some
of their estimated $2 trillion worth of cash holdings.
Japan Posts bid for Toll marked the fourth Japanese overseas M&A deal exceeding $1 billion in a
month, including Itochus $10.4 billion stake in Chinas Citic, Canons $2.8 billion bid for
Swedens Axis Communications and the $1.2 billion offered by Kintetsu World Express for
Singapores Neptune Orient Lines.
In Australia, recruiter Chandler Macleod announced on January 14 that it had agreed to a
takeover by Japans Recruit Holdings for A$290 million, benefitting from the Japan-Australia
Economic Partnership Agreement (JAEPA) that raised the threshold for Foreign Investment
Review Board review from A$248 million to more than A$1 billion.
Its clearly no surprise that they are pushing ahead with their global expansion plans,
PricewaterhouseCoopers Japan head, Jason Hayes told The Australian. Many Japanese
companies have been in a state of suspended animation in terms of coming to grips with
globalizing, but now we are seeing many of them starting to move.
With Japans population forecast to fall below 100 million by 2050, the demographic imperative
has also forced corporate Japans rush abroad.
Fund managers have eyed more potential Japanese takeover targets in Australia, including
financial services companies such as AMP and Challenger. As noted by the Australian Financial
Review, Australian diversified financials have been a happy hunting ground for Japanese
acquirers in recent years, with Dai-ichi Life picking up Tower Australia and Nikko Asset
Management coming for local fund manager Tyndall Investments.
Japan has A$131 billion invested in Australia, making it Australias third-largest source of foreign
investment, compared to Australias A$50 billion invested in Japan. However, the Japan Post bid

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could signify a push into new sectors compared to the traditional mainstays of agriculture and
resources, according to trade watchers.
Services is the new growth area, given that it accounts for around two-thirds of both nations
economies, and were already seeing this with the Recruit and Japan Post investments, said Ko
Nagata, managing director of Tokyo-based Global Sky Group, which has investments in Australia,
Malaysia, New Zealand and Japan.
Theres big potential for further growth in Australia-Japan trade, spurred by JAEPA, the Japan
tourism boom and overseas drive for growth by Japanese companies, he added.
Melanie Brock, chair of the Australian and New Zealand Chamber of Commerce in Japan
(ANZCCJ), told The Diplomat that the Japan Post-Toll deal was part of a new push by Japanese
companies into Asia.
Whats important in this type of investment is what it says to Australian companies who have
developed a footprint in Asia they can help Japan drive its own development [into the region],
she said.
A domestic-focused Japanese company like Japan Post can use Toll to anchor some of their
activities through the network developed by the Australian company. Companies like Toll
represent sectors that Japan might not have been looking at in the past, but Japan and Australia
have come together further in Asia than they might have done singularly.
However, the investment might not be completely one-way, should Prime Minister Shinzo Abes
move to legalize casinos win Diet approval. According to Brock, representative for Australian
casino operator Crown Resorts in Japan, foreign operators could invest as much as A$25 billion
into integrated resorts, potentially in Osaka, Yokohama or regional areas, should the legislation
pass the Diet.
Japan is seeking to revitalize regional areas and looking to attract inward foreign direct
investment. Where the integrated resort ends up is Japans decision, but there are many regional
authorities which have volunteered to host an integrated resort, given the hotel, convention and
entertainment infrastructure it would create. This would help reinvigorate tourism and create
jobs, she said.
In the meantime though, Japans business leaders are clocking up plenty of air miles investigating
potential acquisitions. If a state-owned and traditionally conservative institution such as Japan
Post can go global, others will surely follow.

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