By Atsuko Fukase
TOKYO--The top adviser on mergers and acquisitions in Japan is
neither Japanese nor American but an unusual blend of the two that
has overcome expectations of a culture clash.
Mitsubishi UFJ Morgan Stanley Securities landed the No. 1 spot
in the 2014 rankings for Japan-related M&A for the second
consecutive year, according to data-tracking firm Dealogic. It
advised on deals with a value of $41 billion, beating out Goldman
Sachs Group Inc. at $21.9 billion and Nomura Holdings Inc. at $21.5
billion.
Mitsubishi UFJ Morgan Stanley Securities is part of a web of
ties between two financial institutions--one based in Tokyo, one in
New York--each with long histories. The former Mitsubishi Bank, now
called Mitsubishi UFJ Financial Group Inc., or MUFG, after a series
of mergers, is Japan's largest bank and sits at the center of the
Mitsubishi group of companies, which are linked through
cross-shareholdings and informal ties.
The Japanese bank injected around $9 billion to take a 20% stake
in Morgan Stanley in October 2008, as the New York firm faced one
of the most serious crises since its founding in 1935 because of
the global financial meltdown.
Two years later, they expanded their ties by setting up two
brokerage joint ventures. Mitsubishi UFJ Morgan Stanley
Securities--60% owned by the Japanese side and 40% by the U.S.
firm--focuses on investment banking. It was started with about 100
Tokyo-based bankers at Morgan Stanley and 300 people from the
Japanese side's banking and brokerage units.
For the venture, the biggest deal in 2014 came in January when
Japan's Suntory Holdings Ltd. acquired spirits maker Beam Inc. of
the U.S. for $16 billion.
The deal illustrated the chief advantage of the
Mitsubishi-Morgan Stanley combination: familiarity with the U.S.
market combined with the ability to come up with a lot of cash in a
hurry. The Japanese bank provided a bridge loan of $12 billion,
people close to the deal said. In addition, Morgan Stanley handled
legal and regulatory issues in the U.S., according to Takashi
Nagaoka, the president of Mitsubishi UFJ Morgan Stanley
Securities.
On the lender side, "we had sufficient knowledge of Suntory's
financial structure and business strategy, while Morgan Stanley had
execution capability," Mr. Nagaoka said.
Bankers at the Japanese-American amalgam are largely put on
separate compensation tracks, according to executives. Those
hailing from the Morgan Stanley side are eligible for big Wall
Street-style bonuses in good years but don't have Japanese-style
job security. Many of those coming from the Mitsubishi UFJ side
enjoy job security on a par with peers who work at the Japanese
bank's other units, and their compensation adheres more closely to
the bank's traditional seniority-based system.
The venture got off to a rocky start with trading losses and job
cuts. In 2011, it booked a loss of Yen145 billion ($1.2 billion)
due to poorly hedged derivatives bets. The same year, it started
cutting jobs--about 20% of its workforce--responding to market
volatility caused by Europe's debt crisis. In the M&A advisory
rankings in 2011 and 2012, it ranked eighth and fifth,
respectively.
Since then, it has found its footing. Jonathan Kindred, the
chief executive of Morgan Stanley in Japan, said the combination
works better than outsiders might suppose.
"It's easy when one thinks about a Japanese and American joint
venture to conjure up negatives or reasons why it can't work. But
the reality is that our core business cultures are very
complementary," said Mr. Kindred, who has worked at Morgan Stanley
Japan for more than two decades.
The joint venture's other deals in 2014 included Ajinomoto Co.'s
acquisition of U.S. frozen-foods maker Windsor Quality Holdings LP
for $800 million in September. Morgan Stanley advised Ajinomoto and
Mitsubishi UFJ provided loans for part of the purchase, according
to a person familiar with the matter.
It was the second straight year the venture was ranked No. 1,
after a strong performance in 2013 that included advising on
Applied Materials Inc.'s $9 billion plus takeover of Tokyo Electron
Ltd., which hasn't closed yet.
Rival bankers concede that Mitsubishi UFJ's ability to make
large loans gives the joint venture an edge that pure investment
banks can't directly match. Still, some see the success of the
Mitsubishi UFJ-Morgan Stanley alliance as temporary. So far, many
of its clients have been Japanese companies seeking to expand
overseas, but the weak yen is likely to make such acquisitions
harder in 2015. Rustling up business outside of Japan is mainly a
job for Morgan Stanley itself, rather than the Tokyo-based joint
venture.
Mitsubishi UFJ has its own brokerage unit, called Mitsubishi UFJ
Securities Holdings, that does business abroad. But the unit's
overseas pretax profit accounted for only 5% of its total pretax
profit in the year ended March 2014.
Write to Atsuko Fukase at atsuko.fukase@wsj.com
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