Dai-ichi Life’s unsolicited bid marks milestone for Japan M&A

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In the past few years, there have been several milestones for mergers and acquisitions in Japan that signalled unsolicited takeovers were no longer an alien concept to the country’s companies. 

One pivotal deal came in late 2020 when furniture retailer Nitori launched a $2bn unsolicited bid for rival Shimachu. Then this summer, Apple supplier Nidec announced an unsolicited offer for Takisawa Machine Tools, which was subsequently approved by the target company.

But even in the new world of shareholder activism and governance pressure, no deal trumps the shock and disbelief that rippled across corporate Japan last week when Dai-ichi Life Insurance suddenly threw itself into a takeover battle with M3, a Sony-backed medical information provider. 

The acquisition target is Benefit One, a company in hot demand in the era of labour shortage when higher wages are not enough to attract workers. With 15,600 corporate users including Suntory, Panasonic and Sekisui House, the subsidiary of employment agency Pasona provides corporate employee benefits ranging from gym membership, spa treatment to discounts on babysitting services and even a Netflix subscription.

The fact that there is a fight over Benefit One is not surprising. What was astonishing though even for longtime Japan watchers was that the competing bid came from one of the largest life insurers which, in common with many other big Japanese institutional investors, was a generally docile shareholder before governance and stewardship pressures intensified in recent years.

The deal is exactly the kind of change in corporate behaviour the government had quietly wanted for a long time since Japan updated its mergers and acquisition guidelines in 2019. The updated rules, which recommended that companies set up special committees to examine incoming bids, rather than rejecting them out of hand, were meant to normalise the kind of behaviour displayed by Dai-ichi Life.

Over the past few years, a small but steady rise in unsolicited approaches had already broken the long-held taboo against hostile takeovers and the tendency to view such acquirers as malevolent. But in many of those cases, the bidders were far from traditional and led by aggressive and bold founders. 

“All of the ones at the beginning of a change in habit are milestones,” said Travis Lundy, an independent special situations analyst who publishes on Smartkarma. “But Dai-ichi Life is clearly on the conservative side and people will look at it and say that’s Japan Inc. It’s great news for M&A in Japan.” 

In its presentation material, Dai-ichi Life stressed that it was not launching a hostile bid, saying it was proposing to buy all of Benefit One shares “only if we are able to obtain support from Benefit One and Pasona”.

For the boards of Benefit One and its parent Pasona, the offer from Dai-ichi Life will be a hard one to resist. The insurer said it planned to offer ¥1,800 ($12) per Benefit One share to buy out all the minority shareholders. It also intends to take the company private after acquiring the 51.1 per cent stake Pasona owns in Benefit One. 

That compares against M3’s offer of ¥1,600 per share for up to a 55 per cent stake in Benefit One. The Sony-backed group plans to keep Benefit One listed and it has already agreed to buy Pasona’s stake in the subsidiary. After Dai-ichi Life came out with the competing bid, Pasona said it would review the proposal. 

From a business perspective, there also appears to be more synergy for Benefit One than a deal with M3. Partnering with Dai-ichi Life would give the company access to its 160,000 corporate clients while the insurer also plans to help with expanding the group’s international footprint. For Dai-ichi Life, acquisition of Benefit One would come as it explores other revenue channels to counter a shrinking insurance market at home. 

Then there is the third — perhaps less appreciated — factor related to how the Dai-ichi Life deal is structured. Dai-ichi Life expects Pasona to sell its 51 per cent stake to Benefit One after the insurer buys out the minority shareholders. Under Japanese rules, that transfer would not be taxable, meaning that Pasona would get the full proceeds from the sale while tax benefits would be equally distributed to shareholders. In contrast, M3 has just proposed to buy the Benefit One stake held by Pasona.

If Dai-ichi Life’s approach is successful, one can expect unsolicited deals to become more of an everyday part of Japan’s M&A scene.

kana.inagaki@ft.com