When U.S. banks JPMorgan and Merrill Lynch were hired to handle Kirin Holdings' purchase of a local drugs firm, it was a slap in the face for Japanese banks used to winning most domestic takeovers.
Japanese investment bankers had assumed local financial advisers, such as Mitsubishi UFJ Securities or Mizuho Securities, which are affiliates of the companies' main banks, or Nomura Securities, Japan's leading brokerage, would handle the $2.6 billion all-Japanese deal.
But Kirin's hiring of JPMorgan and bid target Kyowa Hakko Kogyo Co's choice of Merrill added to a sense of a shift in the balance of power, with the door opening wider for Western investment banks to profit from expected steady growth in Japanese mergers and acquisitions.
The mood within the company has gone slack, a Mizuho executive told Reuters. We can't believe this deal went to a foreign firm.
Japanese firms seem more willing now to break with the keiretsu groups that have bound corporate Japan since World War Two.
The era of choosing Mitsubishi UFJ just because we're in the Mitsubishi group is over, said a Kirin executive. Next time it might be Goldman or it might be Merrill. We have no intention of centering everything around Nomura or anyone for that matter. There's no logic to such thinking.
Merrill and JP Morgan both have strong track records in the drug industry, and that was key to their grabbing the Kirin deal.
According to the Kirin executive, JP Morgan started wooing Kirin several years ago and won the business with a clear explanation of the merits and risks of the deal, and a viable plan for survival as the global drug industry consolidates.
The content of their proposal was solid, the executive said. They really did a nice job.
But, despite the hand-wringing, cases like Kirin's are rare.
Only 77 of nearly 15,000 all-Japanese M&A deals since 1999 were managed on both sides by foreign advisers, according to research firm Dealogic.
All-Japanese M&A deals have doubled in the past five years, and more growth is forecast as companies look to consolidate in a mature market or diversify in search of growth.
Western bankers keen to muscle in on that business have traditionally had to outmaneuver local banks that had an edge because of long-standing alliances with companies in the same keiretsu group.
But those keiretsu ties have weakened as banks have run down stakes they held in their customers, and as shareholders have increased the pressure on companies to use their capital more efficiently.
Finally, companies are making the decision on what financial adviser to use with a blank slate and with no regard to any perceived obligations to group firms, said Nobuo Sayama, managing partner of M&A advisory firm GCA Holdings Corp.
Kirin's ties with Mitsubishi date back to 1885 when the president of Mitsubishi group invested in Kirin's predecessor. A Mitsubishi UFJ Financial unit is Kirin's main bank and major shareholder, normally enough to put it ahead in the race for M&A advisory business.
Mitsubishi UFJ Securities has also helped Kirin map out a diversification strategy as Japan's beer market goes flat, and last year advised it on buying wine maker Mercian Corp.
Nomura Securities has been Kyowa Hakko's main broker for a decade, and Kyowa Hakko has ties with Mizuho Securities.
Earlier this year, Merrill advised Tanabe Seiyaku Co on its merger with Mitsubishi Pharma to create Mitsubishi Tanabe Pharma Corp and helped Daiichi Pharmaceutical merge with Sankyo to form Daiichi Sankyo Co in 2005.
JP Morgan advised Dainippon Pharmaceutical on its 2005 merger with Sumitomo Pharmaceuticals to form Dainippon Sumitomo Pharma, and Chugai Pharmaceutical when it became a unit of Roche Holding in 2002.
(Additional reporting and writing by Nathan Layne)