Nippon Life plays up Japan Inc’s existential angst
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Hudson Lockett
HONG KONG, Dec 11 (Reuters Breakingviews) -Japan is buying American in large amounts - at least in the world of M&A. Sure, for months it has looked likely that Washington will block Nippon Steel’s 5401.T $14 billion proposed takeover of United States Steel X.N. That hasn't stopped Nippon Life Insurance from becoming the latest to reach across the Pacific in search of a deal. On Wednesday, it said it has agreed to acquire for $8.2 billion all the shares it doesn’t own in privately-held Resolution Life from investors including Blackstone BX.N. As with other outbound transactions, it might not stack up financially - but Japan Inc is focused on more existential matters.
There are good reasons not to go hunting overseas. The yen has dropped by about a quarter against the dollar over the past three years. That makes purchasing American assets that much more expensive for Japanese companies.
Returns can be poor, too. Based on Resolution's 2023 operating profit and assuming a 21% tax rate, for example, Nippon Life's all-cash offer only yields a return on investment of 2.5%. That should improve: the target, founded only seven years ago by industry heavyweight Clive Cowdery, is growing well. But, that's a low starting point.
Nippon Life, like so many of Japan’s outbound buyers, has more basic concerns than financial metrics: overcoming the challenge of a shrinking home market, thanks to demographic headwinds. One of the fastest ways to do that is to splash out on a U.S. business. Or two, in Nippon Life's case: on Tuesday, it finalised its purchase of 20% of Corebridge Financial CRBG.N for $3.8 billion. All in, its American shopping spree is set to boost overseas operating profit from 6% to 20% of the overall total.
It's not alone. So far this year, Japanese companies have offered to spend almost $50 billion on U.S. counterparts, representing 75% of all Japanese outbound M&A, per Dealogic data. That's the highest level on both counts in more than a decade.
It suggests Japanese executives and their advisers are counting on opposition to the Nippon Steel-U.S. Steel tie-up in the White House - whether Joe Biden's or Donald Trump's - being a one-off.
M&A bankers in Tokyo quietly moan that the metal merger is a perfect fit but for the politics. As long as Washington agrees that other targets are far less sensitive, the deals will keep flowing.
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CONTEXT NEWS
Nippon Life Insurance announced on Dec. 11 that it has agreed to acquire all shares it does not own in privately-held Resolution Life from investors including Blackstone for $8.2 billion. It has also agreed to buy the remaining 20% stake it doesn't own in MLC Life from National Australia Bank for A$500 million ($320 million) and then integrate the business with Resolution Australasia.
The deal is expected to close in the second half of 2025, subject to regulatory approvals. The acquisition is Nippon Life’s second major overseas investment announced this year after the firm said in May it intended to buy a 20% stake in U.S. insurer Corebridge Financial for $3.8 billion. That deal was finalised on Dec. 10.
Graphic: Japan's outbound M&A is dominated by US targets https://reut.rs/3BqUq5v
Editing by Antony Currie and Ujjaini Dutta
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