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18 February 2015 By Peter Thal Larsen

Japan Post is paying a hefty price to stamp “global expansion” on its roadshow presentation. The state-owned giant’s cash offer for Australia’s Toll Holdings values the logistics group at $5.1 billion. Adding an international arm will help spruce up Japan Post’s upcoming initial public offering – and fuel further deal-making.

There’s no obvious justification for Japan Post to pay a 49 percent premium – or 11 times the consensus forecast for this year’s EBITDA – for the 127-year old Australian group. In keeping with many other Japanese outbound acquisitions, the state-owned giant is planning to leave Toll’s brand and management untouched. The new owner may help beef up Toll’s Japanese unit, but this brought in less than 6 percent of total revenue in the six months to December.

Japan Post’s main motive is diversification. Prime Minister Shinzo Abe’s government is parceling up parent Japan Post Holdings for a long-awaited privatisation, with plans to separately list the group’s banking, insurance and postal arms. The letter-delivering unit alone brought in revenue of 2.8 trillion yen ($23 billion) in the year to last March. But it faces a double squeeze from Japan’s declining population and the shift to electronic communications. An international strategy, with a bigger footprint in the logistics and express businesses, offers prospective investors some potential for future growth.

Assuming it gets the Australian government’s blessing, Japan Post is likely to make further acquisitions through Toll. Asian logistics operators are expanding and consolidating as manufacturers become leaner and consumers more demanding. E-commerce giant Alibaba has taken a stake in Singapore Post. Hours before the Toll takeover, Japanese freight carrier Kintetsu World Express announced it was paying $1.2 billion for Singapore’s APL Logistics. Buyers in the sub-sector are now regularly paying double-digit multiples of operating profit or EBITDA, according to Citi analysts.

What’s less clear is how well Japan Post will be able to manage its overseas expansion. Cross-border deals are always tricky; combining a private business with a state-owned parent brings extra challenges. Investors will hope Japan Post’s new subsidiary displays greater discipline on future acquisitions than its new parent has shown so far.


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