Dainippon’s Bold Buyout Bids Startle Experts

Like many of his fellow Japanese executives, Shigekuni Kawamura starts work at dawn, toils late into the evening and talks about making his Tokyo-based company, Dainippon Ink & Chemicals, the world leader in its field.

Yet Kawamura’s peers know he is not the typical Japanese executive. Not only has he spurned such Japanese management techniques as group calisthenics and employee discussion groups, but he is refining to an art a very American management skill--the hostile takeover.

Last year, in fact, Dainippon became the first Japanese company to make a hostile bid for a U.S. firm, leading to its $550-million acquisition of the graphic arts unit of Sun Chemicals of New York. And last week, Kawamura’s company began its second hostile bid for a U.S. firm, offering $473 million to acquire Reichhold Chemicals, a White Plains, N.Y., maker of specialty polymers.

“Among Japanese companies, this firm is unique,” said Hironobu Iio, managing director of Daiwa Securities in New York.

Analysts are surprised not only that the Japanese company would attempt such a bid, but also that it would risk an adverse political reaction in the United States at a time when many major Japanese companies are making every effort to minimize friction.

“Fujitsu set off an uproar trying to buy Fairchild Semiconductor, and that was a friendly deal,” said William Ouchi, professor at the UCLA Graduate School of Business Management. “This is amazing.”

To American-trained Kawamura, however, the bid is no more than the U.S. way of expanding quickly into the $6-billion-a-year global market for ink and paints. “Mr. Kawamura feels that when you’re in the United States, you follow American management practices,” said Joseph L. Piot, president of Dainippon’s principal U.S.-based unit, DIC Americas.

Chinese-born Kawamura, 59, spent part of his youth in Northern California, received an MBA from New York University and joined Dainippon after marrying the daughter of the company’s founder and largest shareholder, Katsumi Kawamura, who is now 81. Shigekuni Kawamura took the name of the family he married into, a practice that is not uncommon in Japan.

With his flawless English and his appreciation for American business skills, the younger Kawamura is “almost binational,” said Piot.

Since beginning an expansion drive in 1976, Dainippon has acquired three companies and portions of two others. Last year’s purchase of Hartmann Group, a West German chemical firm, stemmed from a hostile takeover bid for the company.

The company’s $550-million acquisition of the Sun Chemicals unit was the largest acquisition of a U.S. firm by a Japanese concern, surpassing Fujibank’s $475-million acquisition of Walter E. Heller, the factoring firm, in 1984.

Dainippon is third-largest among ink makers worldwide, with a market share of nearly 35%; it holds a share of about 8% of the combined ink and paint market worldwide, estimated James H. Wilbur, analyst with Smith Barney, Harris Upham in New York.

As it has expanded internationally in recent years, Dainippon has consolidated its strength in the Japanese market and forged relationships with other ink and paint manufacturers as both a supplier and purchaser.

For the year ended March 31, Dainippon’s net income rose 16% to 7.5 billion yen from the previous year, while sales increased 31% to 590 billion yen.

‘Some Way to Go’

While the strength of the yen has made its acquisitions of foreign firms easier, Dainippon’s appetite for acquisition is not likely to be satisfied even if it succeeds with Reichhold, Piot said.

The Kawamuras declared in 1985 that they wanted to double the company’s size by 1990, he said. “They’ve got some way to go, and I think acquisition is only the way they could do it,” he said.

Japanese firms have not tried hostile takeovers in the United States partly because of the difficulty of handling the complex transactions at a great distance and also because they have had little exposure to unfriendly bids in their home country, according to UCLA’s Ouchi.

Stock ownership is highly concentrated in Japan, he said, and usually when a Japanese company becomes financially weak, one of the companies that holds a large block of its shares assumes management control. “There’s never really been a reason for the Japanese to develop skills in hostile bids,” he said.

Ouchi and several other analysts doubted that Dainippon’s success might encourage other Japanese firms to undertake hostile takeovers. “In this political environment, gaining market share in the United States is the last thing the big Japanese companies want to do,” Ouchi said.

While some analysts already are predicting that Dainippon will succeed in its bid for Reichhold, the American company has indicated that it will resist. In a statement, the company last week called the bid unexpected and urged shareholders to keep their shares until Reichhold directors have had a chance to study the takeover proposal.

Higher Bid Expected

Dainippon’s $52.50-a-share bid was made after lengthy negotiations between the companies over the possibility of a friendly acquisition. Reichhold’s stock closed Tuesday at $60.75, down 12.5 cents, a sign that the market expects the Japanese concern or another firm to offer a higher bid.

Reichhold officials declined comment.

Kawamura, who has sent three of his four children to American schools, visits U.S. operations three or four times a year. He has maintained local management of Dainippon’s overseas units, believing that subsidiaries should be run in the style of the country where they are located, Piot said.

Only about 20 Japanese work at the U.S. operations, and none work in the European chemical operations, according to Piot.

He said that despite Dainippon’s American ways, it has begun trying to foster more of the family-style corporate culture of many Japanese firms. “We’d like to take the best parts of what each country has to offer,” he said.

DAINIPPON INK AND CHEMICALS INC. Dainippon Ink and Chemicals Inc. is one of the world’s leading suppliers of printing ink and a major producer of specialty chemicals. Among its principal products are industrial resins, including textile finishings, adhesives and coatings. Based in Tokyo, the firm reported 1986 sales of $2.3 billion and net income of $27.9 million.

The company’s $473-million bid last week for Reichhold Chemical would add to its other U.S. holdings. Last year, it paid $550 million for the graphic arts material unit of Sun Chemical Co. Its principal U.S. subsidiary, DIC Americas, is located in Fort Lee, N.J., and handles chemical and ink sales. Its California holdings include Earthrise Farms of Carson, a firm that grows edible algae called Spirulina, and Viam Manufacturing Inc. of Santa Fe Springs, which makes floor mats for cars.