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Business Deals

Stilted Japanese market ignites burst of overseas megadeals

Takeda and SoftBank seek innovation and growth abroad

Takeda CEO Christophe Weber aims to compete globally and improve research with the $62 billion takeover of Ireland-based Shire. (Photo by Wataru Ito)

TOKYO -- Japanese businesses are racing to open new growth avenues and capture an innovative spark, tapping cheap funds to snap up foreign companies at unprecedented rates.

Such acquisitions hit an all-time high in 2017, and Takeda Pharmaceutical's deal Tuesday to take over Irish drugmaker Shire for roughly 46 billion pounds ($62.4 billion) marked the largest-ever overseas purchase by a Japanese company.

Takeda CEO Christophe Weber has pursued not only scale, but innovation, since he joined the company in 2014. The purchase of Shire will make Takeda globally competitive, he said, and provide a potent engine for research and development.

Shire specializes in products for patients with rare afflictions seen as difficult to treat. Some companies balk at the risk of failing to recoup development costs for products serving such small consumer bases. But unlike so-called blockbuster drugs, designed to work on large swaths of patients, making personalized medicines can help lead to genome-based drug discovery.

Takeda once handled the majority of its discovery in-house, but has turned to startups and external research centers for help as large-scale development becomes more difficult.

In the 1990s, following the bursting of Japan's asset bubble, companies sought domestic mergers and acquisitions as they looked to shed excess staff, equipment and debt. It was a time of heavy consolidation. Lenders saddled with massive nonperforming debts integrated into megabanks. As the steel industry foundered, the former Kawasaki Steel and NKK joined to form JFE Holdings.

Globalization became the new target during the 2000s. Japanese businesses turned their eyes abroad as the U.S. regained vigor through the information technology sector and emerging economies such as China grew rapidly.

The age of overseas megadeals kicked off in 2006 with Japan Tobacco's purchase of U.K. peer Gallaher for about 7.5 billion pounds. Many companies began to buy time, so to speak, by taking over foreign competitors to establish a foothold abroad swiftly.

Japanese businesses now are rushing to shift more operations overseas through a burst of acquisitions as the nation's shrinking population curtails domestic growth prospects and Japan trails competitors in innovation capability.

Even domestic mergers seek global scale. When Nippon Steel and peer Sumitomo Metal Industries merged in 2012 to become what is now Nippon Steel & Sumitomo Metal, Chairman and CEO Shoji Muneoka said the aim was to "compete worldwide" -- unlike the JFE merger, which more resembled an attempt to shake a slump.

In November, an innovation index published by Nikkei showed Japan rising only 6% in the past decade, while China soared more than sixfold and the U.S. climbed 24%. The index covered metrics including international patent application counts and operating profits at listed companies.

SoftBank Group spent nearly $8 billion in January to become the largest shareholder in U.S. ride-hailing business Uber Technologies. Late last month, the Japanese group also engineered a merger of American telecom unit Sprint -- which it bought for about $22 billion in 2013 -- with rival T-Mobile U.S. SoftBank tech evangelist and CEO Masayoshi Son agreed to relinquish control of the carrier in the deal. Son is focusing less on communications infrastructure and more on technologies like artificial intelligence and robotics.

Historically low interest rates have powered the rush of megadeals. For its Shire takeover, Takeda has lined up a nearly $31 billion bridge loan from lenders led by U.S.-based JPMorgan Chase Bank. SoftBank likewise secured in just one week a bridge loan of 1 trillion yen ($9.17 billion at current rates) from Mizuho Bank for its 2016 acquisition of U.K. semiconductor giant ARM Holdings.

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