M&A in Japan: An Analysis of Merger Waves and Hostile Takeovers

The number of mergers between large companies has been low and hostile takeover cases have been rare in post-war Japan. Since the 1990s total M&A activity is increasing in number of cases and value, and coinciding with this trend, hostile tender offer attempts are also more frequent. Previous research argues that the low level of merger and hostile takeover activity is caused by three institutional elements within the Japanese society: the main bank system, the horizontal keiretsu, and the specific Japanese culture. Regarding mergers we examine whether the main bank system influences merger activity of companies. With two event studies we show that involvement of a main bank does not create shareholder wealth in mergers. The main bank appears to act in order to protect its own interests as creditor. With reference to hostile takeovers we show that it is important to make a distinction between greenmail and hostile tender offers. We build an institutional model and show that it is necessary to consider each institutional element from a broad and historical perspective. Finally, we indicate that the low number of hostile tender offers might be explained by the vertical keiretsu and trade association

Impact of Japanese Mergers on Shareholder Wealth: An Analysis of Bidder and Target Companies

The market for corporate control in the second largest economy in the world behaves very different from that in the U.S. Using a sample of 91 mergers in the period 1982-2003 we document several distinctive features of this market in Japan. First, we show that in stark contrast to the pro-cyclical U.S. merger waves, mergers in Japan tend to be counter-cyclical, both with respect to the general economy as well as with respect to stock market valuations. Second, and again in contrast to the U.S. experience, we find that a significant fraction of Japanese mergers are orchestrated by the main banks; in such cases, mergers are not between two weak companies, but at least one of the merging companies is financially strong. Other distinctive features of Japanese mergers are the positive pre-announcement returns accruing to both bidders and targets, with bidders capturing approximately half the gains that accrue to target firms. We also find differential shareholder wealth effects in the bubble period (1982-1989), the early 1990s, and the post-financial regulation regime (1997-2003). Overall our results point to a market for corporate control that is distinctly less shareholder-centered than that in the U.S. and one where creditors play an important, perhaps dominant, role