Nippon Life plays up Japan Inc’s existential angst

Corebridge Financial

11/12/2024 22:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Hudson Lockett
       HONG KONG, Dec 11 (Reuters Breakingviews) - Japan is
buying American in large amounts - at least in the world of M&A.
Sure, for months it has looked likely that Washington will block
Nippon Steel’s  5401.T  $14 billion proposed takeover of United
States Steel  X.N . That hasn't stopped Nippon Life Insurance
from becoming the latest to reach across the Pacific in search
of a deal. On Wednesday, it said it has agreed to acquire for
$8.2 billion all the shares it doesn’t own in privately-held
Resolution Life from investors including Blackstone  BX.N . As
with other outbound transactions, it might not stack up
financially -  but Japan Inc is focused on more existential
matters.
    There are good reasons not to go hunting overseas. The yen
has dropped by about a quarter against the dollar over the past
three years. That makes purchasing American assets that much
more expensive for Japanese companies.     
    Returns can be poor, too. Based on Resolution's 2023
operating profit and assuming a 21% tax rate, for example,
Nippon Life's all-cash offer only yields a return on investment
of 2.5%. That should improve: the target, founded only seven
years ago by industry heavyweight Clive Cowdery, is growing
well. But, that's a low starting point. 
    Nippon Life, like so many of Japan’s outbound buyers, has
more basic concerns than financial metrics: overcoming the
challenge of a shrinking home market, thanks to demographic
headwinds. One of the fastest ways to do that is to splash out
on a U.S. business. Or two, in Nippon Life's case: on Tuesday,
it finalised its purchase of 20% of Corebridge Financial
 CRBG.N  for $3.8 billion. All in, its American shopping spree
is set to boost overseas operating profit from 6% to 20% of the
overall total.
    It's not alone. So far this year, Japanese companies have
offered to spend almost $50 billion on U.S. counterparts,
representing 75% of all Japanese outbound M&A, per Dealogic
data. That's the highest level on both counts in more than a
decade.
    It suggests Japanese executives and their advisers are
counting on opposition to the Nippon Steel-U.S. Steel tie-up in
the White House - whether Joe Biden's or Donald Trump's - being
a one-off. 
    M&A bankers in Tokyo quietly moan that the metal merger is a
perfect fit but for the politics. As long as Washington agrees
that other targets are far less sensitive, the deals will keep
flowing.
    Follow @KangHexin on X
    
    CONTEXT NEWS
    Nippon Life Insurance announced on Dec. 11 that it has
agreed to acquire all shares it does not own in privately-held
Resolution Life from investors including Blackstone for $8.2
billion. It has also agreed to buy the remaining 20% stake it
doesn't own in MLC Life from National Australia Bank for A$500
million ($320 million) and then integrate the business with
Resolution Australasia.
    The deal is expected to close in the second half of 2025,
subject to regulatory approvals. The acquisition is Nippon
Life’s second major overseas investment announced this year
after the firm said in May it intended to buy a 20% stake in
U.S. insurer Corebridge Financial for $3.8 billion. That deal
was finalised on Dec. 10.

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Graphic: Japan's outbound M&A is dominated by US targets    https://reut.rs/3BqUq5v
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 (Editing by Antony Currie and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  LOCKETT/  
hudson.lockett@thomsonreuters.com))