China is acting as a drag on a merger-and-acquisition spree by Japanese companies amid deteriorating relations between the two countries amid the territorial dispute over the Senkaku Islands in the East China Sea.
Trading house Marubeni Corp. said last May that it would acquire U.S. commodities trader Gavilon Holdings LLC for $3.6 billion by September. But Marubeni has put off the planned completion of acquisition procedures until the end of next month because the deal is still “awaiting China’s approval,” said an executive at the Tokyo-based firm.
M&As involving companies with more than a set amount of sales in China are required to be approved by the Chinese government.
Chinese authorities now take more time than usual to accept and examine applications for approval from Japanese companies, according to sources.
A delay in the launch of procedures for the acquisition of Jupiter Telecommunications Co., Japan’s biggest cable TV operator, known as JCOM, by Sumitomo Corp. and KDDI Corp. is attributable to the same reason. Although JCOM plans to integrate management with Japan Cablenet Ltd., its closest rival and a KDDI subsidiary, this fall, the outlook for the merger remains unclear.
For deals having nothing to do with China, companies may well avoid filing applications to the Chinese government. But as many Japanese companies heavily rely on the Chinese market, they often seek approval from China even for such deals “for fear that they would otherwise be retaliated against by the Chinese side,” one of the sources said.
Dentsu Inc., Japan’s biggest advertising agency, planned to complete the acquisition of British ad giant Aegis Group PLC last year. Although the deal has been permitted by the United States and six other countries, approval from China remains pending.
Among other cases, a merger deal was postponed three times before China’s final approval.
“We can do nothing on our own” about the procedural delays on the part of China, lamented an official at a Japanese company.
There has been no noticeable delay in Chinese procedures to permit M&As involving U.S. and European companies.
Many Japanese industry officials therefore suspect the delays are aimed at harassing Japanese companies as a result of the intensifying bilateral dispute over the Senkaku Islands, known as the Diaoyu Islands in China.
“There may be deals that will require more than a year to be cleared” with Chinese authorities, said a lawyer versed in China’s authorization process.
As corporate acquisitions are in part aimed to “buy time with money,” procedural delays may weaken the effects of deals, an M&A expert said.
The delays are likely to affect Japanese companies’ plans to reorganize their operations. The risk of China’s unusually time-consuming approval procedures must be taken into account when Japanese companies consider M&As.
Japan put the uninhabited Senkakus under its control in 1895, but in recent decades China and Taiwan have also claimed the islets, after a report indicated the nearby seabed may hold vast gas and oil deposits.