Coronavirus prompts historic shift in Mitsubishi’s M&A strategy

Mitsubishi Corporation, one of Japan’s most active and aggressive dealmakers for more than a century, will impose a one-in, one-out policy toward acquisitions as coronavirus prompts a historic strategic shift.

The new regime, described to the Financial Times by chief executive Takehiko Kakiuchi, means that for every new asset Mitsubishi buys — across a wide range of sectors — it will aim to match it with the sale of another.

The policy shift comes as Mitsubishi, until recently Japan’s biggest trading house, attempts to keep its balance sheet robust through what it fears could be a prolonged crisis.

“We need to make it clear to our stakeholders that any merger and acquisition under consideration will in no way undermine our financial position,” Mr Kakiuchi said in an interview. “Going forward, our basic approach is to couple good investments with divestments from businesses that are no longer competitive.” 

Japanese companies have been adopting a range of emergency measures to shore up their finances to prepare for the sort of liquidity drought that hit many of them after the 2008 global financial crisis. Despite their reputation as cash-hoarders, say bankers in Tokyo, Japanese companies are in some cases aiming to double their current levels of cash on hand to weather the storm.

Such a move by any Japanese trading house would be significant, said the head of Japan M&A at a large investment bank, but coming from Mitsubishi means it is likely to become a template for businesses across the country.

Japan’s trading houses perform a number of critical industrial functions that include securing energy and other commodities for the resource-starved nation. The pursuit of energy assets in particular means they are almost constantly engaged in M&A and are among the most active clients for investment bankers, lawyers and other advisers.

Mitsubishi has been involved in 49 deals worth $9.7bn in the past five years, according to Dealogic. The company was particularly active last year, striking deals to buy Dutch utility Eneco, 20 per cent of fast-growing UK electricity supplier Ovo Energy and a stake in digital map provider Here Technologies.

But it has also sold off less competitive resource assets since Mr Kakiuchi took over in 2016. That trend is likely to accelerate as he expects it will take about a year and a half for the global economy to fully recover from the health crisis.

“I can’t imagine a complete V-shaped recovery, and it will be more like going back and forth at the bottom of a U-shaped recovery,” Mr Kakiuchi said. He added that the turning point would only come with the development of a Covid-19 vaccine and its worldwide application.

While its oil business has been hit hard by a sharp decline in crude prices, Mitsubishi eked out a 9 per cent year-on-year gain in net profit to ¥162bn ($1.5bn) during the January to March quarter.