On April 21, Japan Post Holdings Co., Ltd. announced the sale of the cargo delivery division of its Australian logistics subsidiary Toll Holdings Ltd. for about 700 million yen. Specifically, it is a disposition of Toll’s business sectors of corporate logistics and home delivery services in Australia and New Zealand. Japan Post is expected to book a special loss of 67.4 billion yen on the consolidated accounting basis for the fiscal year ended March 2021. Previously, because of constantly sluggish Toll businesses, Japan Post already declared an impairment loss of more than 400 billion yen in 2017. The book value of the rest of the Toll stock is 100 billion yen, and the debt reaches 200 billion yen. It indicates that the growth strategies once started with brilliant publication have gone into a deadlock completely.

It was February 2015 that Japan Post announced the acquisition of Toll for about 620 billion yen, which was mainly led by the late Mr. Taizo Nishimuro who had once been involved in the acquisition of Westinghouse Electric Company during his time in Toshiba (then president.) "The days are over when logistics companies can survive by domestic demand and we will take the first step toward becoming a global company," he said proudly at the press conference to announce the purchase of Toll. "The responsibility lies with the management" was also what he said definitely at that time.

Despite of those statements, the aftermath of the acquisition is already known as described above. Besides, it seems as if sequence of incidents starting from a large-scale acquisition, subsequent huge impairment losses, and corporate frauds identified in the burden of the negative heritage are tracing the experiences of Toshiba Corporation. The criticism against Mr. Nishimuro is not negligible. Nevertheless, I can say it was fundamentally attributable to the "air of the era" that supported his decisions affirmatively. That is to say, trends toward globalization, selection and concentration, and praise for strong leadership may have implied the overall stress felt throughout Japan in the hope of regaining the “lost 20 years.”

As you know, Toshiba and Japan Post, both were once headed by Mr. Nishimuro, take some roles in the fulfillment of national policies. But there is a determinate difference between the two conglomerates in the way that the ownership of Japan Post is held by Japan as a nation and as the largest shareholder with a 60% stake. In short, an investment failure committed by Japan Post is equivalent to a public loss for Japanese people.

Last month, Japan Post announced it had entered into a capital and business alliance with Rakuten Group Inc. Japan Post has invested approx. 150 billion yen in Rakuten and has become Rakuten’s major shareholder having an 8.32% stake. Meanwhile, Rakuten has also received investment from Chinese IT giant Tencent Holdings Ltd. Some 65.7 billion yen has invested  in Rakuten through the Tencent subsidiary. Resultingly, Tencent’s shareholding ratio will be 3.65%. In response to the new capital alliance, the Japanese and U.S. governments are reported to be planning to monitor the Rakuten Group jointly from the perspective of economic security concern. The situation will create a new controversial issue because Japan Post (whose largest shareholder is a nation of Japan, the monitoring supervisor,) shares the same investment location with Tencent (the target company to watch out for the national security concern,) as a major shareholder of the Rakuten Group (subject to the joint monitoring).

Last year, the Japanese government lowered the threshold for filing a prior notification of stock purchases from 10% to 1% in association with the requirement imposed on foreign capital firms for investments in the companies that could pose risks to national security. However, Tencent claimed that the acquisition of shares in Rakuten is purely for investment purposes. It should be noted that investments with no intention of involvement in the company management are exempt from the obligation of filing a prior notification. As this case shows, regulations have been tightened but operational issues remain. This raises concerns about conflicts of interest. Data falling into China via Tencent will certainly be a loss of national interest. In addition, once such fraudulent action has been performed and the Japanese government identifies it and takes some measures, then Rakuten's corporate value is damaged. In other words, it is equal to the reduction of national assets of Japan that was invested in Rakuten via Japan Post.

The current controversy over acquisition of the shares in Rakuten highlighted the operational issues of the Revised Foreign Exchange Law and the problematic governance of Japan Post. Comprehensive resolution of the relevant uncertainties and conflicts is urgently needed with due consideration of every possible investment scheme.

This Week’s Focus, April 23

Takashi Mizukoshi, the President