Deal between Kirin and Blackmores highlights strong Australia-Japan relations

The $1.85bn bid by Japanese beer giant Kirin for Blackmores represents another big investment into Australia at a time when goodwill towards Japanese investment is riding high.

The $1.85bn bid by Japanese beer giant Kirin for iconic vitamin company Blackmores represents another big investment into Australia at a time when goodwill towards Japanese investment is riding high on Australia’s support for the Quad security pact.

While any significant investment proposal by Chinese interests attracts controversy, these days Japanese investment in a wide range of areas – from resources and energy to food and industrial companies – is welcomed with open arms, underwritten by increasing political support for the security agreement between Australia, Japan, the US and India, which is seeing relations between Australian and Japan riding an all time high.

While many potential investments from China are dropped for fear of being knocked back by a security conscious Foreign Investment Review Board, Japanese proposals seem to sail through.

Kirin’s bid for Blackmores, which has the blessing of major investor Marcus Blackmore, who has described the company as a “good custodian of the brand” founded by his father, follows its $6.5bn takeover of the Lion Nathan group in 2009, taking over the company that produces iconic Australian beers including XXXX and Tooheys.

As its annual report on Japanese investment in Australia by law firm Herbert Smith Freehills, noted recently, Japan ranks second behind the US in terms of cumulative foreign investment in Australia, now worth a total of $260bn. After a reduction due to Covid-19 travel restrictions, Japanese investment in Australia bounced back last year with 50 mergers and acquisition deals, and 51 partnerships.

The deals cover a broad range of areas from energy and resources to agriculture, food, tourism, technology, financial services, healthcare and even residential home building.

At the same time, Japan is Australia’s second largest trading partner and second largest export destination as two-way trade jumped by 75 per cent in 2021-22 to $117bn.

Deals completed in the last year include TAL Daichi Life Australia’s $900m acquisition of Westpac Life Insurance Services, and Mitsui and Nomura’s purchase of 67 per cent of agricultural asset management group New Forests.

Other big deals have included Japan Post’s $5bn takeover of freight and logistics company Toll Holding in 2015 (a financial disaster for the Japanese bidder and a once-in-a-lifetime gift for Toll’s shareholders) and the $3.8bn bid for the Dulux paints group in 2019 by Nippon Paint.

The basis of the investment relationship is strong, spurred on by a welcoming government here, a steady history of Japanese involvement in the economy led by companies which have become household names including Mitsui, Mitsubishi, Sumitomo, Nippon Steel, Toyota, NTT, Kawasaki Heavy Industries, Marubeni, Itochu and Hitachi.

The lack of economic growth in Japan has also been a significant driver of expansion into a stable, friendly Australia.

Decades ago, the idea of an iconic company like Blackmores being snapped up by foreign investors might have caused a stir.

But these days Japanese investors are seen as part of the Australian economic framework. For their part, Japanese companies have been conservative, long-term investors with a solid track record.

Kirin’s purchase of Australia’s largest vitamin company is part of its strategy of expanding its healthcare and pharmaceuticals business to diversify away from its reliance on beer.

The deal also highlights the increasing interest in health care and related products in the world’s largest economies, particularly China and Japan.

Blackmores has carved out a solid market in China (a prospect which once sent its share price soaring to more than $200) which it can expect to continue under its Japanese ownership.

The population of both Japan and China is rapidly ageing and the pandemic – which saw both countries shut down for long periods – has accelerated interest in health products in the markets.

With slow growth at home and a big welcome mat in Australia, expect more Japanese companies to be putting their billions here.