Japanese uncertainty about economic recovery reflected in drop in acquisitions of foreign companies.

NEW YORK--(BUSINESS WIRE)--July 30, 1996--While the Japanese economy emerges from its four-year slump, Japanese acquisitions, joint ventures and minority investments in foreign companies dropped 32 percent, to 171 transactions, in the first half of 1996 from 250 in the same period last year, according to KPMG Peat Marwick LLP. In dollar value, foreign purchases by Japanese firms declined 47 percent to $5.0 billion from $9.4 billion.

Japan fell from co-leadership with Germany as the world's leading exporter of deal capital. Japan is now in fourth place, trailing Canada, Germany and the Netherlands.

The decline in Japanese deal spending abroad comes as a surprise, since an improving economy usually fuels cash flow for foreign purchases. "The drop was unexpected considering Japan's capital base and its improving economy," said Steve Blum, a KPMG Corporate Finance partner. "This may mean that many Japanese executives continue to doubt the sustainability of the recovery and remain timid after suffering losses in cross- border investments made during the 1980s."

Many Japanese firms were hurt by ill-fated acquisitions in the late 1980s, such as Rockefeller Center and Columbia-TriStar Pictures, according to Aki Watanabe of KPMG Corporate Finance Japan. "Japanese executives are much more cautious and are now basing acquisition decisions on focused strategic business needs. Additionally, if the current economic recovery fades, businesses don't want to be caught with lots of assets overseas. They're nervous about heading back into global waters," said Watanabe.

Blum points out, though, that there are exceptions to the trend. "This month, KPMG advised Fuji Photo in its announced purchase of Wal Mart's photofinishing labs, the largest deal in photofinishing history. The Fuji deal illustrates that leading Japanese corporations still have the capability and commitment to make major strategic acquisitions," he said.

Fewer Buyers of Japanese Firms

Fewer Japanese firms were targeted for purchase by firms abroad, with a 27 percent drop to 32 transactions in the first half of 1996, compared with 44 in the first half of 1995. Despite this decline, spending on Japanese targets rose 67 percent to $1.6 billion in the first half of 1996, compared with $940 million in 1995.

Other factors explaining Japanese cross-border M&A trends include losses by Japanese banks and deregulation in telecommunications, oil refining, retailing and fund management. "With banks suffering, financing for higher risk foreign acquisitions was harder to find. At the same time, foreign money obtained through investments in Japanese firms was an attractive alternative source of capital," said Blum.

Frequent Buyers and Sellers

The most popular target for Japanese firms was China, in which Japanese firms made 44 purchases for $413 million, followed by the United States, where Japanese firms spent $1.5 billion on 38 companies, and Indonesia, where $17 million was spent on ten businesses. In 1995, the biggest deal was the $4.6 billion sale to Japan of Russia's Sakhalin Oil Development Co.

U.S. companies were the most frequent purchaser of Japanese firms, spending $492 million on 18 targets, followed by German firms, which spent $338 million on four targets. British firms purchased two Japanese companies for $273 million.

KPMG's quarterly study of cross-border deals is based on announced transactions. Figures for 1995 have been adjusted for pricing changes, deals that were not completed, and other factors.

KPMG Peat Marwick LLP is the U.S. member firm of KPMG International, The Global Leader among professional services firms. Worldwide, KPMG International has more than 6,000 partners and 76,000 professionals serving clients through 1,100 offices in 837 cities in 134 countries. In the U.S., KPMG partners and professionals deliver a wide range of value-added consulting, assurance, tax, and process management services in five markets: financial services; manufacturing, retailing and distribution; health care and life sciences; information, communications and entertainment; and public services. Additional information about the firm is available on KPMG's World Wide Web site (http://www.kpmg.com).

CONTACT: Andy Katell

Fleishman-Hillard

[phone]

or

Rick Kinigson

KPMG Peat Marwick LLP

[phone]