Successes and failures of Japanese cross border M&A (Pilkington & Nippon Sheet Glass)
Softbank’s $21bn acquisition of Sprint, the merger of Tokyo Electron and Applied Materials and most recently LIXIL’s 3bn euro acquisition of German bathroom fitting manufacturer Grohe have provoked a two part series in the Nikkei Business magazine on the successes and failures of Japanese cross border M&A, starting with the article of 2nd December, which I read just as I was travelling to Japan to help with a post merger integration project.
Since 2000, domestic M&As have decreased, but cross border M&As have soared for Japanese companies, with a pause after the Lehman Shock in 2009-2011. Of the 15 M&As noted by the Nikkei from March 2011 to October 2013, 14 were cross border, and the majority were deals of over $1bn.
The Nikkei comments that although the reason for these acquisitions is clear (the hunt for growth outside the saturated Japanese domestic market), the post merger story has not been that rosy for many of the acquiring companies in the past decade. The Nikkei focuses on three cases – Nippon Sheet Glass’s acquisition of Pilkington in 2006, Daiichi Sankyo’s acquisition of Ranbaxy in 2008 and Ricoh’s acquisition of US company Ikon Office Solutions in 2008, to see what lessons can be learnt.
Nippon Sheet Glass/Pilkington
NSG were worried that they might be dumped by Toyota, their key customer, if they could not match Toyota’s overseas expansion. Before the acquisition of Pilkington, 80% of NSG’s sales were in Japan. Pilkington’s turnover was double that of NSG, so by acquiring it, NSG was finally able to be on equal terms with Asahi (who had previously acquired Saint Gobain). After the acquisition, the March 2008 results showed that NSG Group sales were 80% overseas, with profits at a record high. Stuart Chambers and other Pilkington executives took over the key management positions in the group and it seemed as if the company had become global overnight.
However the good times did not last, as the Lehman Shock brought about the world economic crisis, followed by the euro debt crisis, impacting the two main businesses of automotive glass and construction glass. The NSG management did not take any effective action “and then it hit us” says a Japanese executive at the time “that we knew nothing about Pilkington”. They thought it would be a growth engine, so did not do anything beyond cut employees and shut down operations.
This is where Japanese M&As often come unstuck says the Nikkei – they are so focused on the growth and globalization, they do not fully develop strategies and pathways for ensuring the M&A actually bears fruit. “We had to focus on the immediate crisis, rather than the growth of the new company” says Kazumitsu Fujii, an executive officer.
NSG did know Pilkington quite well – having held equity in the company since 2000, and collaborated on various projects together. Howerver they had not undertaken any simulation of the financial impacts of any worsening market conditions post merger. As one executive at the time says “we did not even have any thought that the economic situation would get so bad so quickly”.
Stuart Chambers resigned in September 2009, citing family pressures from being in Japan all the time – and it was felt that his heart was not really in the job.
NSG had a 4-3-3 10 year vision. The first four years were to be about integrating the two companies’ systems and cutting down the debts. The next three years were to expand sales in automotive and construction glass and the second 3 years were to be about investing in new businesses.
However the company has not managed to move on from the first phase yet. It seems that the lack of understanding and knowledge between the two companies has meant that the negative financial situation has dragged on. “We thought that once we had made the leap into being a global company, all kinds of paths would open up to us, but it was not the case” says a former employee.
The new President, Keiji Yoshikawa says “we are having to fix areas we did not see at the time of the acquisition”. Pilkington had centralised, standardized global HR management and sales systems which looked efficient at first glance, but meant that there were regional differences which were ignored.
For example, construction glass has to take account of the different climates and lifestyles, but apparently such products were not given much priority. So NSG have started to allocate budgets to projects such as fire resistant glass in Germany.
After 7 years, NSG have finally started to understand Pilkington, concludes Nikkei Business.
My personal thoughts on this, having conducted various cross cultural communications seminars for Pilkington and Nippon Sheet Glass at the time, was that the two companies knew each other pretty well. The gap was more to do with differing views and levels of experience in managing globally.
Pilkington, like many Anglo Saxon multinationals, would indeed emphasise a standard unified approach to management and product development around the world, in order to ensure maximum profitability. The Japanese view that products should be customised to suit different markets is not cost effective, in this world view.
The other issue, as is so often the case when Japanese companies acquire Western ones, is that both parties sit back and wait for the other to take the initiative – and this was amplified by the Lehman Shock – where quick and decisive action was needed. Pilkington may well have expected NSG to take the lead, whereas NSG was expecting Pilkington to have the global experience to provide the guidance for what to do in such extreme circumstances.
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