Not since Japan snapped up the Rockefeller Center in the 1980s has the power of a mighty yen and an acquisitive Japan Inc. reverberated so strongly in the United States. This week’s $20.1 billion deal between Japan’s number three mobile carrier Softbank and the moribund Sprint is Japan’s largest outbound investment ever to date, and equally controversial.
The Japanese firm now has a 70% stake in a large chunk of the US tech landscape that, at first, had investors bolting from the scene. But as Softbank’s (SFTBF) shares rebounded the bold move has convinced some. “We estimate that consolidation could yield $20 billion to $40 billion in direct expense synergies over time,” Credit Suisse analysts wrote in a report on the merger. “New capital from Softbank will also allow Sprint to meaningfully improve its spectrum position relative to AT&T and Verizon.”
The report also points out that Softbank has a strong track record of innovation and cost management. That is something of an understatement. Consider Masayoshi Son, Softbank’s chairman. With roots in software sales, he turned Softbank — a “bank” of software, hence the odd sounding name — into the undisputed turnaround king of Japanese commerce.
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A self-proclaimed gambling man, Son has a history of improving his company’s competitive position and plans to revisit his past successes with this American venture. “As we have proven in Japan, we have achieved a V-shaped earnings recovery in the acquired mobile business and grown dramatically by introducing differentiated products and innovative services to an incumbent-led market,” he said in a statement released to coincide with the announcement of the merger plans.
He was referring to his turnaround of ventures such as Japan Telecom, Vodaphone, and Willcom. His purchase of Vodaphone Japan in 2006 has particular parallels with the Sprint deal. The Vodafone acquisition, for one, also cost him about $20 billion in cash and was similarly negatively received by investors as an overly risky bet. Softbank’s share price dropped 60%. Ignoring the critics, Son’s plan was to beat the industry’s characteristically flat growth by increasing market share and average revenue per user. Softbank went on to be one of the few carriers to do this, improving Softbank’s profits by five times according to Son.
Such chutzpah and a taste for a string of unlikely projects has earned him a reputation of an eccentric in Japan. “Many people criticize me as a crazy guy, but I accept that,” he says. “But sometimes craziness produces a good result.” His formula has been to multiply smartphone and tablet sales, while increasing Softbank’s appeal to customers by peddling faster wireless connections. A strategy he says he will extend to this acquisition.
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His American-style maverick ways could make the Sprint gambit a success says Tokyo-based technology consultant Mark Hiratsuka. “Softbank has long been seen here as ‘culturally’ different to the likes of Docomo; due almost entirely to a cult of personality presided over by its Dear Leader, Mr. Son,” he says of Son, who has the most Twitter followers in Japan. “It should not be overlooked that being the second-richest person in Japan probably helps Son mould a firm like Softbank in his own image. It also helps that he went to high school in the US — seemingly trivial, but it does give him an international outlook on business dealings and empires have turned on less.”
This global outlook engendered by positive experiences of life in America — in Son’s case happy schooldays in Silicon Valley — is something now shared by a small band of rich entrepreneurs, such as Hiroshi Mikitani of internet behemoth Rakuten, who all grasp at growth opportunities outside of Japan. Unlike hidebound leaders of traditional, inward-looking Japan Inc. Son and Mikitani are using their foreign connections to expand business and have an aggressive streak that is counter to perceived ideas of Japaneseness.
Such men have spearheaded the country’s foreign acquisition binge which topped a record $90 billion last year. And, there is more to come says Mikitani, who with his purchase of Kobo e-reader this year is perhaps the most eager of all Japanese M&A shoppers. It is time for Japan to grow and expand way beyond its boundaries, he says, if it wants to survive current shrinking domestic markets and the buoyant yen that is killing exports. “We need be more creative and come up with a more competitive product. We have quality but we need to move ahead of our competitors,” he says talking about the possibility of further acquisitions by Japanese firms. “And if the currency is strong (which it is) then we should buy more companies outside of Japan. Just don’t be so negative about the strong yen, I say. This should be our chance to buy. Japanese firms need to buy outside more aggressively.”
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The hope now is that Japan’s interests abroad are not as ill-starred as the short-lived Rockefeller investment. After a bitter clash, Mitsubishi walked out of that deal in 1995, leaving nearly everybody involved very unhappy. Mr Son will be keen not to repeat history.
