General Edition Sunday, January 22, 2006 Issue No. 359
+++ INDEX
- What's new
- Services lineup
- News
- Candidate roundup
- Upcoming events
- Property
- News credits
Start a Company in Japan Entrepreneur's Handbook Seminar 4th of Feb, 2006 If you have been considering setting up your own company, find out what it takes to make it successful. Terrie Lloyd, founder of over 13 start-up companies in Japan, will be giving an English-language seminar and Q&A on starting up a company in Japan. This is an ideal opportunity to find out what is involved, and to ask specific questions that are not normally answered in business books. All materials For more details: http://japaninc.com/handbook_seminar3/ |
+++ WHAT'S NEW |
It's been a momentous week for those of us in the venture
business sector, with the possible meltdown of Livedoor and
its enterprising CEO Takafumi Horie. We speculate later on
what might happen to Horie, but first some background...
We've known Horie since his Livin' on the Edge days. Back
then the team was even younger (current average age of
employees now is 29 years old) and full of ambition. For
some years the company never really seemed to gain
traction, but they were everywhere, trying to do deals --
arranging financings, Venture Capital, and
self-investment in other's companies. Horie aspired to
become a mover and shaker who could join the then elite
ranks of Son (Softbank), Shigeta (Hikari Tsushin), and even
the early-stage successes of Mikitani (Rakuten). But he was
mostly regarded as a curiosity by other Internet
impresarios.
Not any longer.
The persistence paid off, when after making some money on
early investments Horie came to realize that rather than
grow the hard way by building a business organically, it
was easier if just a bit riskier to make money out of M&A
and investment. Back in the late 90's and right after the
dotcom crash, his team were handed deal after deal of
dotcom companies in trouble but with sound businesses. To
his credit, he focused on smaller companies under the radar
screens of the large banks and securities brokers, and on
deals where the target company teams were desparate to
survive and would take any terms. This was very smart and
in 2003 his revenues grew more than 100%, from JPY10bn to
JPY20bn.
The first time Livedoor caught the attention of foreign
investors was his acquisition of Livedoor late in 2002. On
the face of it the target company looked a poor investment,
given that the free ISP had never made a profit and relied
on 700,000 freeloading subscribers for its business. But
then Horie wasn't thinking of Livedoor as a stand alone
business. Instead, he was planning something much bigger,
leapfrogging him into the top ranks of portal traffic. It
turned out that his bet was right, and as Internet
advertising volumes soared after the dotcom crash (less
players in the market, but more broadband users going
online) he turned his sights on owners of bigger customer
bases who weren't making much money, but who, with the
help of a larger sales machine could be made to turn a
profit.
This is how Horie came to get interested in ValueClick, now
Livedoor Marketing. ValueClick Japan was majority owned by
ValueClick USA and had more than 100m page views a month,
but was finding it hard to get profit growth (they were
profitable, though). Furthermore, the ValueClick USA folks
were still suffering from the fallout of the dotcom crash
in the USA, and they badly needed the money, and so were
eager sellers.
The ValueClick deal was an easy one for Horie to do.
Although the press reported that he paid over JPY4bn for
the acquisition, in fact, in a March 2004 interview,
http://japaninc.com/article.php?articleID=1357, he told us
that the actual purchase price was more like JPY600m. How
was this possible? Well ValueClick had more than JPY3bn in
investment cash still in the bank, and this paid for the
bulk of the deal. Some cash and stock swaps probably made
up the rest. The ValueClick deal helped Horie set a
standard within Livedoor to buy companies possessing cash,
but paying as much as possible with stock (and just some
cash).
Also, and it is alleged, illegally, the deal helped him
figure out how to buy into a company through a fund in
an initial low-key transaction, then announce the fund's
sale of the asset to the parent later. Investors were made
to think that the deal was directly between Livedoor and
the target, but with the fund involved, when the investing
public inevitably piled into the market, the profits went
to the fund, not to the sellers of the company.
We would point out that senior management of ValueClick
were out of the company by the time that the window
dressing was alleged to have taken place, and so we imagine
that this clears them of any complicity.
Once the ValueClick deal was done, Horie went on a tear,
and started acquiring dozens of companies, some of which
had cash in them and which helped Livedoor push up its
financial position. Probably the most notable of these was
the purchase through cash and share swaps of Yayoi Software
in late 2004. The previous owner of Yayoi which was an
Advantage Partners fund -- which had gutsily bought the
business in a depressed state off Intuit Software of the
USA. Yayoi is now an amazingly profitable company, and
after consolidation into Livedoor allowed Horie to report
significantly increased profits. Nothing illegal about any
of this, but by now you may be seeing a pattern: that where
the bigger, riskier, and more inventive deals were being
done with foreign owners, foreign bankers, and foreign
advice. We think that was starting to really worry the
business conservatives in Tokyo.
It's no wonder that the conservative press is blaming
"foreign influence" for complicity in the Livedoor affair,
because it is true that the various key events in Horie's
business growth, that have enabled him to reach ever higher
in his ambitions, have been with the help of foreigners.
The culmination of this was of course the Fuji TV affair,
where amazingly he tried to take over Fuji with JPY80bn of
funding provided by Lehman Brothers. Once again, Horie was
pushing the envelope, and was being aided by the
foreigners. This must have particularly disturbed the
business conservatives as they watched a Horie-mon penumbra
effect start to be embraced by a whole new generation of
entrepreneurs. For many of these latecomers, foreign money
for M&A money is like rocket propellant. Only, now, they
are being fed not just by the foreigners but also by major
Japanese securities companies not wanting to be left out
of the feeding frenzy.
The amount of M&A money sloshing around the market is
unbelievable, and we're aware of a number of "roll-ups" and
reverse mergers currently taking place which are being
funded by speculative investment houses backing ballsy
entrepreneurs. One deal, for example, has a start-up funded
by a collection of securities firms for some billions of yen,
with the mandate to buy up to 100 companies to create one
massive player in their niche market.
Then, as we've mentioned previously, there are at least 150
CEO's in the market worth billions of yen each from
proceeds of a previous IPO of their companies, who now
realize that there is a formular to creating yet another
IPO and that this can be greatly facilitated by M&A.
The current IPO standard is for an Internet company to have
at least JPY2bn in sales and a 10-20% profit margin. Such a
company can be created by buying up 4-5 smaller companies
that are just breaking even, then using mass back office
and marketing resources to reduce costs and increase sales,
then taking them public. A smart operator could do this in
about 2-3 years, versus growing the business from scratch,
which is at least a 10-15 year process.
Reverse mergers are of course even quicker still, although
very risky, since the Tokyo Stock Exchange frowns on
obvious market manipulation. A considerable amount of
technical skill and luck is needed to make a quick reverse
merger work properly.
This brings us to what will happen to Horie and Livedoor.
Our guess is that the authorities do not have enough
evidence on Horie personally to put him away, which is why
they are investigating all the email of the company for the
last 2-3 years. This process will take quite a while and
they probably will find minor charges from the
loose-and-fast growth period of 2002-2004 to pin on him.
But if Horie is smart, which we believe he is, he will
dodge jail time.
What is more likely is that he will be forced to personally
take responsibility for the scandal and step down as CEO.
This will placate the conservative forces against him
enough to ease off the pressure, and it will stop
Livedoor's meteoric growth. If he does this, he will have a
chance to fight another day, and we have seen this a number
of times with other companies. That is, the CEO apparently
falls on his sword, the company gets a puppet CEO, Horie
tells the guy what to do, and waits 2 years or so for
things to blow over then comes back in. A variation of this
is that a duly appointed second in command takes the rap
and Horie eases off his growth strategy in order to stay
in his position.
This outcome would have the effect of removing Livedoor as
a threat for the mid-term, and act as a warning to those
coming later that they have to play by both the spoken and
unspoken rules. Livedoor will probably preempt the
authorities in taking action, and this will satisfy all
involved. For a similar situation, think of Shigeta and his
Hikari Tsushin company in 2001-2002. He continued to run
the company, but took a very low profile. Hikari Tsushin
rose from the ashes to once again become a powerhouse in
direct selling.
Back in 2002 everyone was speculating that Shigeta was done
for, we were not so sure, labelling him a "fighter". We
think that Horie fits the same mold, and hopefully he will
get some advice quickly on how to show honor and
responsibility and thus live for another day. It's of
course hard to say whether Horie's personality could
embrace this scenario...!
The alternative outcome is harder to imagine. The
authorities try to pin a major crime on Horie and he is
hauled off to jail. Or, he is delisted, and the company
becomes vulnerable to a buy-out by a "trustworthy" player.
If either happens, the authorities will be obliged to go
after other risky M&A practioners, perhaps even Masayoshi
Son of Softbank, and this would kill the venture market in
Japan -- which in turn would send the economy into a tail
spin.
Given that the financial health of Japan is more and more
dependent on foreign investment, indeed, PM Koizumi is
going to announce a doubling of FDI by allowing foreigners
to M&A Japanese targets, then a stock market meltdown is
probably too big a risk and one that he won't want to take.
...The Information Janitors/
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+++ SERVICES LINE-UP |
Contact [email protected] if you want your company here.
- Personal International Investor -- a convenient source of ideas and information on how to invest profitably as an expat in Japan. Every Thursday, 48 weeks of the year. Completely free.
http://japaninc.typepad.com/personal_intl_investor/
- Advertise with Japan Inc newsletters. JIN and Terrie's Take cost just 2 yen per person to reach 51,000 people. Great for last minute offers and event advertising.
[email protected].
- Get a low-cost office in Tokyo, at the Venture Gas Station incubator. Just JPY80,000/month, in Minami-Aoyama. Spaces closing fast -- enquire now.
[email protected]
- J@pan Inc. magazine has gone quarterly. Subscriptions now just JPY3,600 a year. Sign up at
http://www.japaninc.com/mag/subs.html
- Find new bilingual sales staff -- a specialty for DaiJob.com,
[email protected]
- Anyone can buy a .JP domain...online...real-time...in English! Register now at:
http://www.JapanRegistry.com
Win one of 5 iPod Nanos! KDDI Survey KDDI 001's Kokusai Mobile Talk service has NO registration See more details: As part of our ongoing efforts to improve our service, we are conducting a survey on the web about international telephone calls, and we are giving away five iPod-nanos to participants who complete the questionnaire before the drawing date. You need to be a foreigner living in Japan to qualify for the draw. KDDI survey: http://japaninc.com/KDDI/form.html |
+++ NEWS |
- Japan to reimpose beef ban
- Nintendo blows past estimates
- LVMH sales soar
- Shinsei Bank high-interest time deposits
- Device connects regular lines to IP phones
-> Japan to reimpose beef ban
For the US beef industry, the unbelievable has happened,
and they have been found in breach by Japanese agricultural
inspectors of a bilateral agreement reached just two months
ago. US beef has been banned by Japan since November 2003,
following a mad cow disease scare. The inspectors were
surprised to find an entire shipment of beef with the
spinal columns still attached to the carcasses which was
specifically banned in the agreement. The Japanese response
was swift and they have said that the ban will be reimposed
for an indefinite period. (Source: TT commentary from
chosun.com, Jan 21, 2006)
http://english.chosun.com/w21data/html/news/200601/200601210001.html
-> Nintendo blows past estimates
Nintendo has apparently blown through all expectations on
shipments of the DS game console, and sold more than 1.5m
units in December 2005 alone. This brings total shipments
to 5.6m systems sold in Japan since the 2004 launch. The DS
is outselling the competing Sony PSP by 5:1, and supplies
are now so short that second-hand sites are listing the DS
for double its suggested retail price. (Source: TT
commentary from gamespot.com, Jan 20, 2006)
http://www.gamespot.com/news/6142782.html
-> LVMH sales soar
Luxury goods continue to fly off the shelves in Japan,
thanks largely to the recovering economy. Overall the
luxury group's consolidated revenues increased 11% to
E13.9bn (approx. US$16.8bn). Among the brands to outperform
were Moët & Chandon and Veuve Cliquot champagne, Louis
Vuitton bags and clothing, and TAG Heuer (up 17%). (Source:
TT commentary from thebusinessonline.com, Jan 22, 2006)
http://tinyurl.com/9nrc4
-> Shinsei Bank high-interest time deposits
Shinsei Bank has said that it will start offering a time
deposit with an interest rate of 10% (not p.a.) over the
6-10 year period of the deposit. With a minimum amount of
JPY3m, depositors will receive variable interest that is
fixed to the cost of capital over the same period. If
government-specified interest rates go up on a steady
basis, then depositors will receive 2% interest the year
after opening the account, and the remaining 8% at the end
of the contract period. As with most good offers,
depositors will not be allowed to cancel their contracts
early, preventing customer churn if higher yielding
products hit the market. (Source: TT commentary from
nikkei.co.jp, Jan 22, 2006)
http://www.nni.nikkei.co.jp/AC/TNKS/Nni20060121D21JF155.htm
-> Device connects regular lines to IP phones
Japan Network Storage Laboratory (JNSL) has announced that
it will start selling at the end of January a device that
connects ordinary NTT/KDD and other land-line phones to
Skype. The new VoSKY 6050 was designed by a Taiwanese
firm and attaches a phone line to a PC running Skype. The
JPY20,000 unit will let users pay just a local phone
call, including mobile phone call, to connect nationally or
overseas through Skype. ***Ed: These things are not new but
with the right promotion will sell like hotcakes.**
(Source: TT commentary from nikkei.co.jp, Jan 21, 2006)
http://www.nni.nikkei.co.jp/AC/TNKS/TNKSHM/newpro/tele50.html
NOTE: Broken links
Many online news sources are now removing their articles after just a few days of posting them, thus breaking our links -- we apologize for the inconvenience.
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+++ CANDIDATE ROUND UP |
DaiJob, Inc's executive placement team, AMBITION Consulting
-----------------------------------------------------------------------------------------------
DaiJob has great candidates. Contact Alex Burr at
[email protected], or Ph: 03-3499-3040 for details.
-> Pre-Sales / System Engineer.
Female, mid 30s, native Japanese, fluent English.
Experience:
- 10yrs technical and customer support for leading international IT companies in Japan
- Strengths in resolving customer issues in international environments
- Technical skills in CRM, Business Intelligence technology
Technical skills:
- Applications-ERP(R/3, BaaN), CRM(Vantive, salesforce.com), OLAP(Essbase), others Programming language?ABAP, C, JAVA/JSP/Servlet, HTML, VBA, SQL, JavaScript, Perl
- O/S- UNIX(SunOS/AIX/Linux), Windows 95/98/NT/2000/XP, OS/400
* Looking for JPY8m. Available 1 months notice.
--------------------------------------------
-> IT Pre-Sales
Male early 30s, Native level Japanese, Business English
Experience:
- Approx 6 years pre-sales, 6 years in system development
- Sales promotion activities (presentations, product demonstrations, holding seminars, proposal generation)
- Negotiations/problem-solving for internal sections, indirect sales partners and end-users
- Designing, constructing, operating, and assessing large and medium scale systems using UNIX and Linux
- Designing, constructing and operating storage systems
- Leadership in systems development and solutions proposals
Technology:
- storage H/W and S/W such as Solaris, Linux,
various middleware products, servers and cluster servers
Customers:
- NTT, Itochu Techno-Science Corporation, Nihon Unisys, Panasonic Solution Technologies Kyoto University, Kobe University, National Industrial Research Institute, etc.
* Looking for JPY10m. Available 1 months notice.
--------------------------------------------
-> Investment banking/equity research TMT sector
Male,late 20s, MEng PEng PMP, Native English, fluent Japanese, Mandarin, Cantonese
Experience:
- Project Manager of a cross-functional team of mobile service development projects at the largest mobile telecom operator in the world by market capitalization
- Research team member of other telecom activities, attending Third Generation Partnership Project (3GPP) international standardization meetings; establishing dialogs with operators, and strategic planning
- Development team member, 2003 GSMA Best Wireless Handset Vodafone GX10 at one of the major mobile handset makers.
Technical competencies:
- Telecom industry knowledge, project management, statistical analysis, manufacturing process improvements, technical writing
* Looking for JPY12m, Available with 4 weeks notice.
+++ UPCOMING EVENTS/ANNOUNCEMENTS |
Just the entreprener seminar on February 4th this week. See the ad at the top of this newsletter.
IT events announcements are priced at JPY50,000 per week. |
+++ THIS WEEK'S PROPERTY |
No properties this week.
E-mail us at [email protected] for more details on any property listed here.
MAGAZINE INTERNSHIP The J@pan Inc magazine currently has an internship opening for a web programmer. |
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+++ ABOUT US |
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