Weak Yen Triggers Taiwanese Acquisitions of Japanese Machine Tool Makers

Taiwanese machine-tool makers Fair Friend Enterprise Group, Goodway Machine Corp., and Hiwin Technologies Corp. have decided to acquire Japanese machine-tool makers in a move widely seen as an attempt to convert the threat of the weak yen into an opportunity.

The yen's value plummeted to a six-year low following the Bank of Japan's unexpected announcement on Oct. 31 of additional stimulus measures aimed at boosting inflation. The yen’s slide has rattled some non-Japanese exporters in Asia, including Taiwan’s machine-tool makers.

Fair Friend Chairman Jimmy Chu reports that his firm is planning to buy more Japanese machine-tool makers. It is in talks with three Japanese makers about acquisitions deals, which are expected to come to fruition in the first half of 2015.

Chu notes that acquiring Japanese manufacturers can bring many benefits to his company, including the respected image of made-in-Japan products and the preferential tariff deals the Japanese government has reached with most of the world’s nations.

In May this year Fair Friend took over the Ikegai Corp., the world’s No. 1 lathe maker, in the largest Japanese acquisition ever by a Taiwanese machine-tool maker. Taiwanese company has also acquired Sakazaki and Takeuchi.

South Korean manufacturers, too are on Fair Friend’s shopping list; indeed, it has already acquired the the 70-year-old Korean machining-center maker DMC.

Goodway Chairman D.H. Yang says his company is mulling over the possibility of buying a Japanese manufacturer as the first step in a plan to set up a manufacturing site in Japan. He feels that the “Made in Japan” label can boost his company’s competitiveness.

Yang predicts that Japan’s machine-tool industry will grow 30% year-on-year in 2014 in terms of revenue as the market recovers.

Hiwin Chairman and Chief Executive Officer (CEO) Eric Chuo has said that his company is planning to set up a manufacturing operation in Japan by either acquiring an existing manufacturer there or building a new factory from the ground up. Hiwin is the world’s No.2 maker of ball-bearing screws and linear guideways, both of which are crucial components of machine tools.

Chuo points out that the weak yen has made the acquisition of Japanese makers less expensive, and his company is already in acquisition talks with a Japanese manufacturer.

S.C. Hsu, chairman of the Taiwan Association of Machinery Industry (TAMI), notes that while the weak yen poses a threat to Taiwan’s machine-tool exports, it also makes it easier for Taiwan’s machine-tool makers to carry out acquisitions in Japan.

Predicting that the yen will soon slide to 120 to the US dollar, down from 113 or so now, Hsu fears that the 30% advantage in the cost of supplies that the island’s machine-tool makers enjoy over their Japanese rivals will soon disappear if the Taiwan government fails to allow a considerable devaluation of the New Taiwan dollar. (KL)