For Japanese M&A, integration's the key

Japan has about 2,400 drug manufacturers. Sounds like an industry ripe for consolidation? But Japanese drugmakers with the resources to snap up smaller companies don't want domestic buyouts. They're looking overseas for deals.

Take Takeda Pharmaceutical, which recently agreed to buy the Swiss drugmaker Nycomed for $13.7 billion. As the Financial Times reports, CEO Yasuchika Hasegawa dislikes the idea of buying a fellow Japanese pharma. "We are not interested," he told the newspaper. "I'd rather spend my time on a more rewarding opportunity [overseas] in terms of return on investment. I don't see [opportunities] domestically."

One reason is government regulation. Were Takeda to buy up some smaller Japanese drugmakers, it would find its freedom to integrate operations rather limited. It's tough to lay off redundant staff, for instance, the FT notes. So, restructuring to cut costs and generate the ROI Hasegawa cites just isn't as straightforward as it can be when buying an overseas firm.

Not that it's easy; just listen to Takeda EVP Frank Morich, who's charged with bringing Nycomed into the fold. The two companies are very different, and Takeda wants to keep Nycomed's more entrepreneurial-minded managers to handle its far-flung operations with a high degree of local autonomy. "The vital condition for achieving this is to have enough trust between where those other decisions are made and Tokyo," Morich says. "I see that as my main role. That these guys get the trust, that they get enough freedom from Tokyo--and that I ensure that is not read the wrong way in Tokyo."

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