Asian Competitors Buying Japanese Companies: Desperate Fire Sale or Strategic Repositioning For Growth?

The Japanese economy has struggled for over a decade to recover from its property bubble. Among the casualties have been many Japanese firms who could simply no longer compete with their technologically adept but lower cost competitors. A central question is whether this is the inevitable settling of bad debts or evidence that the Japanese government is quietly encouraging this trend to spur capital formation.

Mariko Sanchanta in the WSJ provides an overview:


"One of the most influential Japanese clothing brands to emerge over the past two decades has been snapped up by a Hong Kong apparel maker, in a deal that underscores the growing wave of acquisitions of Japanese firms by their Asian competitors.

A Bathing Ape—better known as BAPE—grew from a single shop on a back street in Tokyo's trendy Harajuku district. Its T-shirts, hoodies and jeans, designed by Tomoaki Nagao, known as Nigo, acquired a cult following among young Japanese men when the brand launched in 1993, and were later embraced by hip-hop icons such as Kanye West and Jay-Z.

Microsoft's X-Box and Nintendo's DS game handset were emblazoned with BAPE designs, and BAPE-branded condoms were part of the label's lineup.

Now, I.T Ltd., a Hong Kong-based clothing company, is set to buy a roughly 90% stake in Nowhere Co., the Japanese operator of A Bathing Ape, from Mr. Nagao for 230 million yen ($2.8 million).

The deal comes on the heels of a spate of others in which Asian buyers have acquired Japanese companies and real estate.

Marlion Holdings Ltd., owned by a consortium of Chinese investors, last year bought more than 50% of Honma Golf for an undisclosed price. The Hilton in Niseko Village, a popular ski resort in Japan's northernmost island of Hokkaido, was purchased by YTL Corp., a Malaysian infrastructure conglomerate, for six billion yen.

I.T is aiming to increase its market share in street fashion in both Hong Kong and mainland China, where the appetite for A Bathing Ape's $75 T-shirts is growing as younger Chinese consumers look for edgier styles with an established brand.

A Bathing Ape opened its first store in Beijing in January, and has retail outlets in Shanghai, Hong Kong, Singapore, Taiwan and New York. Its Los Angeles store closed last year.

In A Bathing Ape's heyday, lines would snake around the shop in Harajuku with scores of young men eager to buy one of its T-shirts, which were made in limited batches. But in recent years, Nowhere Group's balance sheet has suffered.

For the fiscal year ended Aug. 31, 2010, the company's net loss was 119 million yen, slightly narrower than the prior year's loss of 267.4 million yen.

The company had liabilities totaling 1.03 billion yen in the year ended Aug. 31. I.T will guarantee the company's outstanding loans of 2.6 billion yen.

I.T said in a press release that it will "promptly rationalize Nowhere Group's capital structure to restore a healthy balance sheet and positive cash flow. It is anticipated that measures to be taken will include implementation of stringent cost controls."

Mr. Nagao has agreed to stay on as the creative director of Nowhere for two years, focusing on product design, brand direction and image development.