When George Bush went to Japan for Emperor Hirohito’s funeral, comedian Jay Leno remarked that “as President of the United States, he figured he should meet the owners.” June Collier, founder of an Alabama-based lobbying group called Citizens Against Foreign Control of America, takes a grimmer view of the Japanese invasion. Said Collier: “Some people call what they’re doing investment, but it’s buying. And when they buy, they control.” Even the citizens of Montana, who have long resented eastern interests buying up their state—eastern meaning New York City and Boston—expressed concern about the apparent threat from the other East after the Tokyocontrolled Zenchiku Land and Livestock Company Inc. bought the 77,000-acre Selkirk Ranch in Beaverhead County last August. “We should not surrender [Montana] to the Japa-
nese replacements for our old masters,” wrote T. J. Gilles, agriculture editor of the Great Falls Tribune. But although Japanese corporate raids provoke heated debate in the United States, GiUes did not note the increasing appetite of quiet Canadian businessmen who are purchasing more American assets than even the Japanese. In fact, Canadian firms are second only to the British as major buyers of American assets. Over decades, Canada had quietly amassed $155 billion worth of American assets by 1986, compared with Britain’s $170 billion. Each year since then, the U.S. commerce department has listed Canada as one of the three most acquisitive buyers of corporate America. In 1988, British, Canadian and Japanese takeovers accounted for threequarters of a record $68.5-billion surge in foreign investment—21 per cent over the previous year.
A breakdown by IDD Information Services, a Wall Street database that tracks mergers and acquisitions, showed Britain in the lead last year with $30.2 billion spent on 161 transactions. Canadian investors bought 53 American companies for a total of $13.6 billion, while the Japanese spent $12.7 billion on 39 companies. Despite such hostile views as those expressed by Gilles, and the millions of Americans who evidently have similar concerns, most analysts predict that Bush will not move against the outside raiders. And many U.S. businessmen say that the injection of new investment and expertise from foreign firms is extremely beneficial.
Despite their generally low profile, Canadians captured newspaper headlines in 1988 when Toronto-based Campeau Corp. put together the second most expensive U.S. takeover of 1988, paying $8.2 billion for Cincinnatibased Federated Department Stores Inc. Campeau has since recovered more than half that amount by selling off 27 components. Britain managed two sizable U.S. takeovers: BAT Industries PLC’s $6.2-billion acquisition of the insurance giant, Farmers Group Inc., and publishing tycoon Robert Maxwell’s $3.1-billion purchase of the Macmillan publishing firm. Japan’s Bridgestone Corp. paid the same amount for Firestone Tire and Rubber Co., and Sony Corp. paid $2.4 billion for CBS Records. But all the 1988 deals were dwarfed by the $30-billion sale of RJR Nabisco Inc., the huge tobacco and food conglomerate, to Kohlberg, Kravis, Roberts & Co. (KKR). That New York City firm, which specializes in leveraged buyouts, closed the deal on Feb. 9 after a bitter bidding war with Nabisco’s management.
The dust from the Nabisco battle had barely settled when Time Inc. went to court to fight off a $ 14.5billion hostile takeover bid by Paramount Communications Inc. Time won on July 24 when the Delaware Supreme Court upheld a lower-court decision allowing the publishing conglomerate to merge with Warner Communications Inc. without a shareholder vote. Foreign takeover activity slackened in the first six months of 1989— largely because financial markets were unable to rapidly finance further buy-outs because of the magnitude of the Nabisco purchase. Even so, the British still spent $11.4 billion on 63 transactions.
Just one of those, Grand Metropolitan PLC’s purchase of Pillsbury Inc., cost $7 billion. France jumped to second place on IDD’s spending chart when Pechiney SA, a metals producer, paid $1.6 billion for Triangle Industries Inc., a packaging company, while Canada and Japan tied for fifth place after Saudi Arabia and the Swiss. Again, as in 1988, the Canadians spent roughly the same as the Japanese in the first half of this year—each in the neighborhood of $1.3 billion—but acquired nearly twice as many American companies: 34 compared with Japan’s 18.
Raid: But unless it is a spectacular raid, like Campeau’s takeover of Federated, Americans rarely take note of Canadian corporate activity on their home soil. IDD mergers analyst Michael McGinn said that Canadians are “fairly similar to American acquirers” in that they have a broad range of business interests and are “more comfortable making deals of various sizes.” He added that the Japanese, on the other hand, are more narrowly focused, and that their takeover activity is limited to “a few big players, like Sony, who think only in terms of mega-deals.” The effects of their competition on vital industry sectors, including automobiles and electronics, give the Japanese a higher profile—and make them more resented. “Most of the fear is tied to job security,” said Michael Iscove, president of Creative Fusion Ltd., a Toronto firm that has arranged takeovers by Canadian companies of U.S. firms involved in entertainment, advertising and real estate. He added: “Canadian competition has not hurt American industry to anywhere near the same extent as the Japanese. Consequently, Canadians are not regarded with the same kind of fear and suspicion.”
Canadian firms have a number of sound economic reasons for acquiring U.S. firms, and their aggressive expansion shows no sign of slowing. The United States offers Canadian corporations lower tax rates—five to 10 per cent less than they would pay north of the border—and lower wage rates in such antiunion states as North Carolina. But the overwhelming reason for Canadian firms to head south is market penetration, which is far more easily accomplished by acquiring or merging with a U.S. firm than starting an American operation from scratch.
Strong: If a firm wants to 5 move into the United States by starting up an American base, it has to set up an office, 2 hire staff, promote its prodg uct or service, then wait for u customers. If it invests the same amount of money in a leveraged buy-out of a U.S. company in the same business, it gets that company’s cash flow, profitability and client base—and the money starts working immediately. Said Iscove: “It’s hard to justify a startup unless the firm is extremely strong financially and feels that’s the best way to go.” Iscove added that his firm has been involved in 20 takeover attempts in the past year, half of which have been successful. His office is in the same Toronto office building as Kingsbridge Capital Group, which is currently involved in a $300-million takeover bid for Dunkin’ Donuts Inc., the Massachusetts-based doughnut chain. If Kingsbridge and its partner, Cara Operations Ltd., succeed, it would be one of Canada’s
biggest buy-outs of an American company this year.
Although foreign investment generates an estimated three million jobs in the United States and pays about $95 billion annually in wages, those who criticize the so-called “selling of America” have found a large audience. Polls show that 75 per cent of Americans want limits on foreign investment and nearly half want to ban it altogether. Congress is now considering a bill sponsored by Representative John Bryant, a Texas Democrat, that would require registration and regulation of foreign purchases. But Congress has rejected two similar bills, and political analysts in Washington say that the same is likely to happen again. Like his predecessor, Ronald Reagan, Bush appears to be adamant that foreigners be treated the same as domestic investors, with the exception of those buying into broadcasting and defencerelated industries.
Larger: As well, many observers say that the notion that America is losing control of her destiny to foreign ownership is farfetched. Paul Craig Roberts, an economist at Washington’s Centre for Strategic and International Studies, noted that “foreigners own a minuscule share of our capital stock and have no prospect of buying up America. The reason is simple: our capital stock is growing each year by an amount five times larger than the capital inflows into the U.S.” Roberts added that “it ill behooves Americans, whose foreign investments have dominated the world in the postwar period, to complain when foreigners want to invest here. If overseas investments lead to political control, we would have taken over the world by now.”
Other experts say that foreign ownership benefits the United States. Murray Weidenbaum, director of the Centre for the Study of American Business at Washington University in St. Louis, said that foreign ownership has introduced new and better management techniques and injected massive amounts of capital into operations that might otherwise have foundered. Coon Rapids, Iowa, for one, was saved from extinction when Britain’s Imperial Chemical Industries PLC bought out the Garst Seed Co., the town’s major employer. Imperial Chemical has invested more than $120 million in Iowa since 1985. Residents of another Iowa town, Clarinda, are so happy with a $ 54-million plant expansion by NSK Corp., a Japanese-owned manufacturer of bearings, that they recently sent their mayor to Japan to seek more buyers of American business. Although editor Gilles expresses resentment over the arrival of the Japanese, many Americans clearly believe that economic growth is more important than the £ origins of its investment.
HOLGER JENSEN with WILLIAM LOWTHER in Washington and DAVID LINDORFF in New York City
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