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Recruit has plenty of cash for its overseas shopping trip

TOKYO -- Following its high-profile debut last week on the Tokyo Stock Exchange, Recruit Holdings now has a war chest for its intended global acquisition spree, one that will concentrate on the bitterly competitive human resource services market.

Recruit Holdings President Masumi Minegishi rings the TSE's opening bell to commemorate the company's listing on Oct. 16.

     In the bourse's largest initial public offering so far this year, Recruit first changed hands at 3,170 yen ($29.31), above its IPO price of 3,100 yen. It ended Thursday, its first trading day, at 3,330 yen. The gain came amid a sell-off on the Nikkei Stock Average, which tumbled more than 400 points at one point.

     Recruit rose as high as 3,600 yen on Friday, pushing the company's market value above 2 trillion yen. Its shares ended their second day of trading at 3,545 yen, up 215 yen from the previous day. The company's market capitalization stood at 2.03 trillion yen, ranked 39th on the TSE's first section, moving up from 43rd and passing Mitsubishi Heavy Industries and Sony along the way.

     Investors appear to be welcoming the company's strategy to carve out a slice of the global industry through acquisitions.

     Some analysts say the stock market's sharp decline, due to concerns over the darkening world economy, rather helped Recruit.

     "Recruit has a broad array of businesses that are not easily affected by overseas factors," an analyst at a major brokerage pointed out, adding that the stock has attracted investors because massive selling of newly listed shares is unlikely.

     A wide range of investors, both individual and institutional, have bought Recruit stock.

     "The company has many businesses familiar to general consumers in Japan," said Toshio Araki, an executive officer at kabu.com Securities. "Its growth agenda is easy to understand, even for individual investors."

     The amount of Recruit share buys exceeded that of sells at the online brokerage on both the first and second days of the stock's trading.

     Sales promotion media is Recruit's largest source of profits, followed by human resources media and staffing services.

     The company has kept growing by shifting its strategic focus from the publication of free job-placement magazines to Internet-based services.

     The company's growth strategy is now focused on overseas expansion, where it hopes to capitalize on its expertise and enhance its information technology acumen, President Masumi Minegishi said.

     Japan's largest staffing company plans to use the roughly 100 billion yen it raised from its listing and borrow even more to buy foreign rivals.

     "We hope to become the world's top human resources service provider in 2020," Minegishi said, "and the top marketing company by 2030."

     He also said his company in the future could make large-scale acquisitions of over 100 billion yen.

     The stock's price-earnings ratio is predicted to be 31; the average ratio of all stocks listed on the TSE's first section is 15. This shows investors are betting on the company's ability to expand globally.

     But not all investors are sold. A fund manager at a foreign investment company points out that the history of Japanese companies' big overseas acquisitions is littered with disasters, and Recruit has not been tested in this regard.

     It remains unclear whether Recruit's strategy or its made-for-Japan business model will work overseas, especially since Recruit will have to go up against the likes of Google and other Internet icons.

     As of the end of March, Recruit had accumulated 193.7 billion yen worth of goodwill from its past acquisitions, more than 20% of its overall assets. Goodwill is an intangible asset arising from the acquisition of a company for a premium value. 

     Amortization of the goodwill cost the company some 36 billion yen last fiscal year, no small financial burden.

     The company's goal of becoming the world's largest human resource services provider by 2020 is ambitious, given that the top three players -- Switzerland's Adecco, the Netherlands' Randstad Holding and U.S.-based ManpowerGroup -- all ring up more than $18 billion in annual sales, roughly twice Recruit's.

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