On the day that nationwide coronavirus infections topped 2,000 on March 25, Japan’s biggest sugar maker revealed it had started merger talks with its two smaller domestic rivals.
Not surprisingly, very few people outside the industry noticed the low-key announcement, let alone its significance during the global pandemic.
But the deal is striking because a tie-up between Mitsui Sugar and Dai-Nippon Meiji Sugar would have been unthinkable a few years ago. The companies are backed by two of the country’s most powerful general trading groups — Mitsui and Mitsubishi — whose rivalry runs a long way back into prewar Japanese corporate history.
Not only are the two foes now coming together because of the “severe” business environment, they are bringing along a third group, Nippon Beet Sugar Manufacturing, to create an alliance with combined annual revenue of $1.8bn.
The industry had been crying out for consolidation. Japan’s yearly consumption of sugar has fallen 30 per cent in the past three decades; cheaper alternatives and sweeteners from overseas are widely available despite tariffs; and consumers and policymakers around the world are waking up to the problems that a high sugar diet causes. But change has not been quick to happen.
Long before Prime Minister Shinzo Abe’s push for free-trade deals and the opening up of certain sectors of the economy, it was obvious Dai-Nippon Meiji with annual sales of just $300m would not be able to go it alone for ever. Still, it continued to jostle with a dozen-plus rivals in a tiny industry where beet and cane farmers have long been heavily protected by the government.
This struggle for survival in a market with a declining population is emblematic of a range of problems, from inertia and inefficiency to lack of internationalism, that have sometimes held back corporate Japan.
If the sugar merger does come through, the good news, as one chief executive close to talks on the deal recently forecast, is that it will not be the last.
Bankers said government officials appear keen to take advantage of the coronavirus crisis to encourage national champions. But even without prodding from the state, Japanese companies — since before the outbreak — have buried old rivalries, giving rise to a string of tie-ups in motorcycles, construction companies and drugstore chains. The same is true for newer industries, with messaging app Line planning to integrate with Z Holdings, the SoftBank-backed internet group formerly called Yahoo Japan.
The trend for mergers has been partly driven by broader governance reforms. Conglomerates including Hitachi, Toshiba and Sony have been offloading valuable non-core assets in response to the changes, giving them the financial firepower to pursue assets at home and abroad.
Last year, Japanese businesses spent $56bn on buying domestic rivals, the highest amount since 2007, while the number of domestic merger and acquisition deals hit a record 3,000, according to research group Recof.
Activity has, naturally, slowed this year because of the pandemic: spending on domestic M&A is down 30 per cent compared with a year ago.
Still, there are encouraging signs that the trend will continue.
Takeda Pharmaceuticals, which closed a £46bn deal for Irish drugmaker Shire last year, is in talks to sell its domestic over-the counter medicine business for several billion dollars to reduce its debt. People close to the deal said pricing has become more difficult because of the pandemic but domestic strategic buyers and private equity groups are nevertheless expressing interest in the business.
Sony, meanwhile, has launched a $3.7bn offer to buy out shareholders in its lucrative financial services business, while NEC last month sealed a merger with Japan’s largest telecoms operator NTT.
As global deals have collapsed elsewhere, Hitachi has completed its $11bn acquisition of ABB’s power grids division, while Mitsubishi Heavy Industries closed its $550m purchase of Bombardier’s regional jet business.
Merging with weakened rivals at home is not a viable survival strategy on its own, which is why chief executives generally play down the idea of widespread domestic consolidation and opt instead for outbound deals and cross-border partnerships.
But there are certain parts of Japan Inc from cars, chemicals, heavy industries to shipping that could gain significant benefits from having fewer competitors and focusing on areas where there is real growth. If this sugar deal is any indication, company bosses may be able to take advantage of this crisis to emerge stronger by putting to rest historic rivalries.