The takeover battle between Tokyo Broadcasting System (TBS) and Rakuten has ended in a draw of sorts — for now at least. The two companies have buried the hatchet, so to speak, and have agreed to start talks on forming capital and business ties.
Rakuten, Japan’s top Internet retailer, has dropped its bid to integrate management under a joint holding company and agreed to deposit about half of its 19-percent equity stake in TBS in a bank trust. In response, the broadcaster has softened its attitude. Details of the agreement, such as final stakes and contents of cooperation, are to be worked out by next spring.
It is uncertain how the talks will develop in the months ahead. If no significant progress is made, the face-off that began about two months ago could come to a head again. It seems more likely, though, that the negotiations will end inconclusively without achieving a much-touched “fusion” between broadcasting and the Internet. In fact, that is what happened to the similar talks earlier this year between Fuji Television Network and Livedoor Co.
The latest tieup drama has raised two vital questions: One is how to fuse, or integrate, the Internet business and existing television broadcasting; the other is how to incorporate merger-and-acquisition activity in Japan’s corporate culture, which traditionally puts a premium on harmony and cooperation.
Today the boundary between the Internet and TV broadcasting as means of transmitting information is becoming increasingly blurred. The use of personal computers equipped with a TV tuner is now common, and so is the exchange of video clips by broadband communications. In 2011, TV broadcasting will switch to digital terrestrial broadcasting nationwide.
Internet companies are ahead in the area of networking, while TV broadcasters are strong in the fields of video assets and programming. Therefore, Rakuten and TBS seem to have much to gain from forming a complementary alliance. The hope is that the talks ahead will produce a pace-setting business model, rather than end up as a time-buying exercise.
Rakuten has resorted to aggressive tactics in pushing its M&A strategy. Since its listing on Jasdaq in 2000, the company has carried out a succession of acquisitions against a backdrop of rising investor expectations in the growth of the Internet business. It started out as an operator of online shopping malls that brought together Internet mail-order firms. Now, however, it is a conglomerate that includes different types of operations, such as travel service, credit sales, brokerage and even management of a professional baseball club.
The proposed tieup with TBS can be regarded as an extension of that strategy. Reportedly Rakuten’s original aim was to increase the value of its network by distributing the Internet video information produced by a commercial TV network. With a market capitalization of about 1 trillion yen vs. nearly 600 billion yen for TBS, Rakuten was in a position to press for a more-than-equal partnership with the broadcaster.
The problem was, and still is, that M&A tactics are not always accepted favorably in Japan, although they are widely practiced in the United States and Europe as means of injecting vitality into corporate society. The general view here is that a corporation belongs to its employees and clients and to the society as a whole. Therefore, an aggressive attempt to buy out a company through acquisition of a large number of its shares is likely to meet strong resistance. Indeed, there does not seem to be much support for the theory that the shareholder is almighty.
It is not that Mr. Hiroshi Mikitani, the owner of Rakuten, was unaware of such traditional sensitivity to corporate takeovers. In fact, his first attempt was to forge a strategic partnership with TBS through dialogue. In doing so, he wisely sought the understanding of business leaders with whom he was well acquainted. Obviously he had a lesson to learn: Livedoor’s unfriendly bid for Fuji TV had forced the Internet service provider to give up its plan to integrate with the leading broadcaster.
To speed up the talks with TBS, Rakuten, perhaps running out of patience, purchased a large portion of TBS stock. As a result, negotiations deadlocked, leaving Rakuten — and TBS as well — no choice but to reach a compromise deal: an agreement to begin fresh talks on a possible business and capital alliance.
Mr. Mikitani himself seemed ambivalent: While supporting the Western-style M&A strategy, he was inclined also toward a Japanese-style management philosophy. Indeed, his challenge seems to highlight again, following Livedoor’s failed bid for integration, an urgent need to build consensus on an old yet new question: To whom does the corporation belong?
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