Japan Post plans to defy mounting criticism of its dealmaking ability and embark on a new round of domestic and global acquisitions, say bankers and others close to the former state-owned postal services giant.
The company’s renewed hunger for acquisitions has emerged just a few months after the president of Japan Post Holdings (JPH), Masatsugu Nagato, laid out the shortcomings of its earlier attempts at buying-in growth and reassured a press conference that the company could survive without acquisitions and would continue to grow “on its own”.
The new plans, say people familiar with the situation, will put JPH on the hunt for asset management companies, leasing groups and other targets in the non-bank financial industry.
The revival of Japan Post’s interest in acquisitions has begun taking shape as the government confirmed on Wednesday it had raised ¥1.3tn from the sale of a new tranche of shares in JPH.
The hefty share offer, which was priced on Monday this week at a discount of 2 per cent to JPH’s closing share price that day, was the world’s second biggest so far in 2017 after the Italian bank UniCredit raised $13.7bn in February. The issue was primarily aimed at Japanese individuals, who appear to have been won over by the healthy dividend attached to the shares, while only 20 per cent of the issue was allocated to international investors.
Masatsugu Nagato had been under pressure to drop plans for more acquisitions © Bloomberg
Despite its success, the share sale was overshadowed by the Y400bn writedown JPH made earlier this year on Toll Holdings — the Australian logistics business it bought under a previous president in 2015 in an effort to convince investors that it had a strong overseas growth strategy.
The writedown pushed JPH into a ¥29bn loss for its first full year as a listed company, provoking outspoken criticism from investors and Japanese politicians over the group’s failure to pick the right acquisition target and manage the integration.
That criticism, according to people close to JPH, created pressure on Mr Nagato to drop plans for more acquisitions — a strategy he had previously said was important given the limitations on profit growth in the domestic postal business.
“Publicly Japan Post since the Toll and Nomura Real Estate problems has stopped talking about M&A,” says one adviser familiar with senior Japan Post management.
“But privately they have made it clear they are still interested. The stakes are obviously much higher — the next time they do anything even small, it has to be absolutely the right deal for them or they are going to get shouted at.”
A renewed global and domestic search for acquisitions is likely to come as a surprise to some investors. Fund managers who had the chance to interrogate JPH earlier this month when it was on a global roadshow to promote the share sale said that the company had “not come across as a big future dealmaker in the short term”.
As an investment, say analysts, Japan Post has always presented problems: while its two financial subsidiaries — the bank and the insurance company — have valid avenues for future growth, the main postal services business is hamstrung by its obligations to maintain various operations at its 24,000-strong branch network in every town and village across the country.
The cost base is extremely hard to reduce, while the core delivery business suffers from the broader shrinkage of the domestic market due to technology and demographics.