NBS takeover plot thickens, but it’s still too early for optimism that Japan is ready for change

Our friend Saru has, after a long hiatus, posted a new piece over on his blog. Neither of us here holds a candle to Saru’s knowledge of economics, so I won’t try to offer any additional comment right now. Here’s his lead, go read the rest over at his blog, and check out some of his older pieces. Posts may be rare, but always well written and informative.

Recent developments in the ongoing takeover battle between internet upstart Livedoor and old guard Fuji Television for control of Japan Broadcasting are making things interesting for Japan watchers.

Yesterday came the unexpected news that the Tokyo District court had ruled in favor of Livedoor, ordering NBS to halt its intended direct issuance of new shares to Fuji in an effort to dilute Livedoor’s holdings. Yahoo! Asia News ran this rather optimistic analysis of the ruling, describing the court’s decision as, “turning the clock forward on Japan’s capital markets.

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3 thoughts on “NBS takeover plot thickens, but it’s still too early for optimism that Japan is ready for change”

  1. Hey, why does Japan need to change on this front? Don’t get me wrong…I’m a big fan of Horie-mon and all, but it seems like he’s the one who’s gone about it all wrong by sneaking around and buying up NBS’ stock in the first place.

    He’s trying to import a little part of America to Japan…and I think it’s the wrong part of America to import. Japan’s the kind of place where hostile takeovers and needless lawsuits don’t exist (at least not very much) for good reason, and that’s the kind of thing that makes me love it there.

    I respect what you guys do on this site. In fact, I love it. I can’t get enough of your insight into Japan and Japanese ways. But what I love is the fact that America offers its culture and way of life, and Japan offers a quite different way of life, to complement it. And I personally would hate it if Japan started adopting the uglier parts of American culture…the rampant confrontation, hostile takeovers, needless lawsuits, lack of discipline, etc…

    My question to you guys is this: How can what Horie-san is doing represent, or point to, a positive change in Japanese society? (I’m not suggesting it is not, since I don’t really know all of the specifics of the situation). My first inclination is that it is not positive, yet your headline seems to suggest that it is. Why?

  2. aburioe,

    Hey, this is Saru.

    First of all, thanks for checking out the post and thanks for your comment. I think I should probably be answering your question because I originally posted it over on my blog – the guys here at Mutant Frog just linked to it and are in no way responsible for the content.

    With regard to Horie-san’s actions and his attempted takeover of NBS and then wield influence over Fuji, you are perhaps correct to question his motives and ask in what way this represents a positive change for Japanese society. I am not terribly familiar with the specifics of his business plan, and from what I can tell NBS seems to be operating well and is in no need of external reforms via a hostile takeover.

    Furthermore, from what I hear on the ground there in Japan, Horie’s business plan seems to be rather flimsy and he appears to be more concerned with getting control of Fuji than of improving the performance of NBS.

    Finally, I certainly understand the Japanese government and citizen’s concern over foreign control of broadcast corporations. Even the United States has regulations limiting foreign ownership of domestic radio and television.

    So, the case with Horie-san is perhaps not a good example of potential for positive change, and he may be an aberration that should be stopped. I’m not sure if you read the full posting on my blog, but if you read it in its entirety it should be clear that there is more involved than just allowing Horie to have his way with NBS and Fuji.

    But as far as how this could point to a positive change in Japan, I think the case of Shinsei Bank is the easiest example for me to cite without having to engage in timeconsuming fact checking. The former Long Term Credit Bank of Japan was a textbook example of the excesses of the Bubble period and also the breakdown of the tightly controlled post-war Japanese financial system. After it was nationalized by the government, the deadly combination of its books and the weakened state of the Japanese economy at the time (including the financial system) was such that no Japanese banks seemed willing to touch it. And that is precicely why the Japanese government eventually wound up selling it to foreign investors at Ripplewood Holdings.

    For reasons that are too complicated to get into here, I think it would be difficult to replicate the success Ripplewood had with reviving the bank on a large scale, but one thing that is clear is that in this case the much criticized “non-Japanese behavior” was wildly successful. In short, maybe Shinsei was a fluke, but it does offer some evidence that the implementation of outside ideas, even if they may be somewhat harmful in the short-term, can produce long-term benefits eventually.

    In part this is about Japan’s attitudes towards outsiders, but I think this is more importantly about whether or not Japan is willing to bring their economy in line with the rest of the world. And one of the requirements for that is the relatively uninhibited flow of capital and ideas. Allowing in foreign capital is no doubt a double edged sword. But even the Japanese are capable of recognizing the occasional necessity of adopting foreign practices when necessary, and they have been quite successful at doing so in the past.

    The Japanese economy is once again in recession, and while some economic and structural reforms have been made, many of them were nothing more than cosmetic and have done little to enhance the performance of the economy. To say that higher growth is necessary is not my personal argument or even necessarily a Western argument, because I think that even the Japanese government would agree that higher economic growth is desirable. But the simple fact of the matter is that they have hit a brick wall operating on the status quo and seem to be unwilling or unable to do much to change.

    The point is not whether or not Japan should change or not. This is noting more than opinion anyway. The point is whether or not Japan is willing to accept the consequences of not changing. For example, if the Japanese government continues to take actions like submitting bills to the diet that make it more difficult for foreigners to purchase Japanese assets, then Japan is going to be left by the wayside. This time I am not making a value judgment, but trying to make an observation.

    Like I said earlier about foreign capital, change is a double edged sword. You have to sacrifice something to gain something. If lawmakers and the bureaucracy are unwilling to sacrifice tight control over large parts of the economy, they must be willing to (and seem to be willing) live with zero or negative growth rates. And, you can never be sure of what you are gaining and sometimes it isn’t always clear what is at stake, so this is by no means an easy decision.

    All of that said, I was rather glad to see your comment because it’s sometimes very easy to get caught up in making arguments along the lines of “Japan should do x, y, or z,” when x, y, and z are typically the way things are done in the US or in the West. Maintaining objectivity can be extremely difficult, and your comments were a much needed reminder for me so I am trying to think about this from a bit different angle in writing my reply. I will be the first to admit that there are many, many aspects of Japanese culture that I would be extremely sad to see go or be replaced by foreign substitutes.

    Anyway, this is a response to a difficult question that was written pretty much off the top of my head and is therefore not organized very well. I’m not a terribly good writer and require a fair amount of time to make things coherent (time I did not take in this reply), but I hope I was able to address some of your concerns. I would be happy to continue the discussion or welcome any further comments, either here or over at The Laughing Monkey.

    Thanks again for taking the time to post.


  3. Yesterday the Financial Times ran an article on the potential consequences for Japan if certain factions within the LDP are successful in their attempt to pass legislation restricting foreign acquisition of Japanese firms. In addition to revealing a domestic political aspect of the legislation, one which I completely failed to recognize, the article touches upon aburioe’s question much more consisely and eloquently than I perhaps did. Check it out here:

    “Blow to Koizumi campaign for increased FDI”


    — Saru

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