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Foreign Investors on Buying Spree

May 16, 2000

TOKYO (AP) _ Taking advantage of economic hard times here, foreign investors are doing what even five years ago would have been shocking _ buying up a record amount of shares in companies that once formed the bulwark of Japan’s financial and industrial base.

But while their newfound foothold reflects a significant opening of the world’s second-largest economy, many experts wonder whether the shopping spree may be ill-advised.

Led by French automaker Renault SA’s purchase of a 36.8 percent stake in Nissan Motor Co., foreign companies spent a record $13.2 billion in Japan in 1999.

That’s more than triple the $3.94 billion in the previous year, the Bank of Japan said in its annual report, released in March.

Foreigners once complained that high costs and closed markets prevented them from investing in Japan. The tradition of companies in Japan’s tight-knit corporate groups to own the bulk of each other’s shares also kept them out.

Now, though, companies suffering from the nation’s decade-long economic slump are dumping shares in their affiliates at low prices to repay debt, making it easier for foreign companies to gain a foothold.

And now that the momentum is going, analysts say they expect the buying trend to continue for the foreseeable future.

``We haven’t seen any letup,″ said Peter McKillop, spokesman for U.S. investment bank J.P. Morgan Securities (Asia) Ltd. ``There will be a lot more deals coming down the pike.″

Rival investment consultancy PricewaterhouseCoopers has more than doubled its investment advisory staff to more than 100 in Japan over the past year. It plans to add 50 more by the end of the year on expectations of more deals, said spokesman Koichi Yamamura.

It wasn’t long ago that a foreign takeover of a major Japanese company caused an outcry not unlike that in the United States when Sony Corp. in 1989 acquired Columbia Pictures.

In 1996, Japanese newspapers warned of a foreign invasion and western-style job cuts when Ford Motor Co. boosted its stake in Mazda Motor Corp. to 33.4 percent and installed Henry Wallace as president.

Yet there was hardly a blip three years later when Renault announced in May 1999 that it would buy its stake in Nissan and appoint Carlos Ghosn as the automaker’s second-in-command.

Nor was there much fretting in December when the Japanese government approved New York-based Ripplewood Holdings’ $1.76 billion takeover of the failed Long-Term Credit Bank of Japan Ltd. LTCB was one of three banks that had financed Japan’s rise into an industrial power after World War II.

And already this year, German automaker DaimlerChrysler AG has said it would pay $2.1 billion for a 34 percent stake in Mitsubishi Motors Corp., Japan’s fourth-largest automaker. By owning more than a third of Mitsubishi’s shares, DaimlerChrysler gains the power to veto management decisions.

``Nothing surprises me anymore,″ said Katsuyuki Yamakawa, 25, a salesman for a publishing company in Tokyo. ``Sometimes change is good if it makes things better.″

Analysts agree.

Foreign investment is good for Japan because it brings new management ideas, helps Japanese companies repay debt and, as in the case of LTCB, pulls them out of bankruptcy.

But the benefit for the overseas investor is not so clear.

Much of their focus has been on struggling automakers, as well as on unhealthy banks and other financial companies suffering from investments that went bad when asset prices collapsed in the early 1990s.

``These are without exception really pretty weak Japanese companies and it isn’t obvious that the foreign investor can fix them,″ said James Abegglen, chairman of Asia Advisory Service K.K., a consultancy for foreign companies in Japan.

Foreign companies would be better off spending their money in service industries where they have an advantage over Japanese firms, said Haruo Shimada, a professor of economics at Keio University.

The goal, he said, should be to lure some of the estimated $12.3 trillion out of Japanese savings accounts.

Shimada said life insurance, family care and other lifestyle industries are not well-designed in Japan and are an area in which foreign companies have a competitive advantage.

``There’s a brilliant future for foreign investors″ in those areas, he said. ``And this time the Japanese people are going to welcome it.″

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