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Japan Cross-Border M&AGrowing and sustainable

Published by J.P. Morgan’s M&A team in June 2017

Japan

Koichiro Doi Head of Japan M&A E: [email protected] T: +813 6736 1861

Michiaki Maebori Executive Director, Japan M&A E: [email protected] T: +813 6736 9066

Global

Hernan Cristerna Global Co-Head of M&A E: [email protected] T: +44 20 7134 4631

Kurt Simon Global Chairman of M&A E: [email protected] T: +1 212 622 9882

Chris Ventresca Global Co-Head of M&A E: [email protected] T: +1 212 622 2228

North America

Anu Aiyengar Regional Head of M&A E: [email protected] T: +1 212 622 2260

Europe, Middle East and Africa

Dirk Albersmeier Regional Co-Head of M&A E: [email protected] T: +44 20 7742 4461

David Lomer Regional Co-Head of M&A E: [email protected] T: +44 20 7134 9798

Asia Pacific

Rohit Chatterji Regional Co-Head of M&A E: [email protected] T: +65 6882 2638

Kerwin Clayton Regional Co-Head of M&A E: [email protected] T: +852 2800 6555

Latin America

Ignacio Benito Regional Head of M&A E: [email protected] T: +1 212 622 2459

We thank John Hall, Co-Head of Global Investment Banking Coverage in Asia Pacific, for his contributions to this report.

JAPAN CROSS-BORDER M&A | 1

ContentsExecutive summary 2

1. Review of cross-border M&A (1980-2017) 3

2. Drivers of outbound M&A in Japan 5

3. Review of Japanese outbound and inbound M&A activity in 2015, 2016 and Q1 2017 15

4. Shareholder activism in Japan 23

5. Outlook for M&A activity in Japan 24

6. Considerations for international sellers and buyers 26

Key takeaways 29

About J.P. Morgan M&A advisory solutions 30

Select J.P. Morgan-advised Japan cross-border M&A transactions 31

Please note: Use of this material is subject to the important disclaimers set out on the inside back cover.

2 | JAPAN CROSS-BORDER M&A

Executive summary

Japanese M&A volume was strong in 2016, amounting to $198 billion in total transaction value, despite global geopolitical uncertainty. Cross-border M&A, in particular, was a bright spot for Japan, accounting for 57% of deals for the year, up from 45% in 2011. We anticipate continued interest on the part of corporate Japan to tap into international markets as companies search for growth. This report analyzes the main drivers behind the pickup — including demographic and economic trends affecting companies’ long-term growth plans — and why we anticipate the increase in cross-border M&A to be sustainable.

Key drivers of Japan cross-border M&A

• Shrinking population and slow domestic growth limit internal expansion.

• Corporate Japan’s mindset toward outbound M&A is changing.

• Enhancing growth, global competitiveness and market share requires outbound M&A.

• Funding cost remains low with near-zero interest rates and supportive bank lending.

• Government initiatives encourage outbound investment activity.

• Adoption of International Financial Reporting Standards (IFRS) is more conducive to M&A.

The report examines the impact of increased outbound M&A on a number of sectors and looks at the geographies that are most appealing to Japanese companies as they pursue outbound acquisitions. It also provides perspective on activism in Japan as an additional dimension of cross-border M&A.

The last section of this report identifies key considerations for potential international buyers and sellers as they formulate their M&A strategies and navigate the processes associated with deals with Japanese corporations.


1. Review of cross-border M&A (1980-2017)

Meaningful cross-border M&A activity in Japan is a relatively recent phenomenon that began approximately six years ago. As seen in Exhibit 1, overall and cross-border M&A volume has occurred at three fundamentally different levels over the past 37 years. Cross-border volume did not occur consistently until 2006, while outbound volume increased significantly beginning in 2011. These trends reflect the continued slowdown of the Japanese economy, and Japanese corporations’ slowness to adapt to a changing global economy. In response, Japanese companies have had to forgo their traditionally domestic orientation and reliance on organic growth and acquire businesses abroad in search of growth.

Exhibit 1

Announced Japanese M&A transaction value (1980-2017E) and cross-border activity

1980

($bn)

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990 1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

250

150

50

0

100

200

300 Inbound deals % cross-border dealsDomestic deals Outbound deals

11

11

33

2

0.10.41.4

6

132

9

0.1273

0.32

0.4

13

113

0.1

34

8

224

38

25

1214

31

1011

317 15

77114

643

118

35%

32.5%

37.2%

26.4%

20.4%

20.4%

12.4%

29.3%

38%

49.5%

24.4%

35%

44.8%

55%

42.8%

52.1%

58.1%

56.8%

62.6%

77

16

25

124

85

55

98

134

269

218211 210

170

134

205215

142

130

195198

139

84

5341

78

107

236

16

17

12

52

154131

24

56

106

74

30

128

28

14

87

36

11

113

84

8

97

111

8

81

53

8

62

53

14

82

89

25

86

101

12

52

74

13

8

20

416

9

11

21

31

9

21

1344

640

32

81

Sources: Dealogic and Thomson One, as of March 31, 2017


1980-1998This period is characterized by limited domestic and cross-border M&A volume, coinciding with a strong economy for Japan, which the rest of the world envied for its design and manufacturing acumen. In 1980, nearly half of the world’s 50 largest corporations by market capitalization were Japanese. M&A was not an element of corporate strategy as it was in the West, particularly in the U.S. and U.K.

There was a brief period of outbound activity in 1988 to 1990 that was generated by Japan’s robust economy, when corporations had excess cash to pay for foreign assets. Memorable transactions then included Mitsubishi Estate’s purchase of the landmark Rockefeller Center in New York City, Sony’s $3.4 billion acquisition of Columbia Pictures, Leyton House’s acquisition of a 54.5% stake in Hugo Boss in Germany and Asahi Breweries' acquisition of a 19.9% stake in Foster’s Brewing in Australia.

1999-2005This period witnessed an increase in overall M&A volume, including Japan’s record volume in 2005. Japanese activity was driven mainly by consolidation of domestic financial institutions, guided by the government to seek recovery from bad debts arising from the burst of the economic bubble in the early 1990s as well as continued lack of growth. Automotive companies consolidated alongside the global automotive industry. The two large deals in 2005 that accounted for the record volume were the $62 billion merger of Mitsubishi Tokyo Financial Group and UFJ Holdings and the $7.2 billion merger of Sankyo and Daiichi Pharmaceutical. Cross-border volume also increased markedly in this period and, unlike in later years, it was relatively balanced between inbound and outbound.

2006-present Beginning in 2006, Japan cross-border volume increased significantly in absolute size and as a share of overall M&A volume. Cross-border M&A increased to 29% of total volume in 2006 from a low point of 12% in 2005 and steadily climbed to 63% in the first quarter of 2017. This significant increase, specifically in outbound M&A, coincides with recognition of changing macroeconomic conditions in Japan. The growth of Japanese GDP 1996 to 2006 was almost flat, with a compound annual growth rate of 1%. In 2009, China’s economy overtook Japan’s in size; Japan became the world’s third-largest economy and witnessed its first drop in population. Flattening growth and a declining population altered business leaders’ outlook and encouraged Japanese corporations to pursue overseas acquisitions in search of new markets, capabilities and intellectual properties to enhance competitiveness and growth.

Three serial acquirers illustrate the increased dollar volume of outbound transactions in the technology, media and telecommunications (TMT), pharmaceutical and consumer sectors: SoftBank’s $36 billion acquisition of Sprint and $32 billion acquisition of ARM; Takeda’s $14 billion acquisition of Nycomed, $9 billion acquisition of Millennium and $5 billion acquisition of ARIAD; and Japan Tobacco’s $19 billion acquisition of Gallaher and $8 billion acquisition of R.J. Reynolds’ international tobacco business.

Section 2 of this report discusses key trends supporting the continuation of significant cross-border M&A, specifically outbound. Section 5 discusses likely future target sectors and geographic markets for cross-border M&A.


2. Drivers of outbound M&A in Japan

Macro-economic backdrop: A shrinking population and slow-growing economy Japan’s declining population and slowing economy have created a sense of urgency among Japanese corporations to pursue outbound acquisitions to enter new markets, obtain new products and capabilities and access innovation.

The population of Japan reached its peak in 2008, at just over 128 million, and has declined in the years since, a trend that is anticipated to continue for the next four decades. Government-affiliated research released in April 2017 forecasts the population to shrink by an additional 16% to 108 million by 2040 and drop further by 33% to 88 million by 2060, despite the country’s goal to maintain a population of 100 million into the 2060s. Such a decline would further limit domestic organic expansion opportunities for Japanese corporations in the already saturated domestic market.

Exhibit 2

Population totals and forecast for Japan (mm)

88

126 127 127 128 128 128 128 128 127 126 125 124 123 122 120 119 117 115 114 112 110 108

130

120

100

90

80

1995 2000 2004 2008 2012 2016 2020 2024 2028 2032 2036 2040 2060

70

60

110

140

Source: National Institute of Population and Social Security Research (IPSS), as of March 31, 2017

In 2009, China overtook Japan as the world’s second-largest economy with double-digit GDP growth, a result of the mostly flat growth in Japan over the preceding decade. Japanese government projections forecast growth to remain anemic with a CAGR of 0.9% over the decade. According to IHS Global Insight, the Japanese economy may become the fourth largest by 2035 if the Indian economy continues its current trajectory.


Exhibit 3

Historical and projected real GDP of Japan

30,000

25,000

1995 2000 2005 2010 2015 2020 2025 2030 204020350

15,000

20,000

10,000

5,000

Japan

($bn)

ChinaU.S. India

20352009

Sources: IHS Global insight and IPSS, as of March 31, 2017 Note: India GDP is converted to a calendar-year basis

Exhibit 4 Exhibit 5 Exhibit 6

Global GDP breakdown in 2000

Global GDP breakdown in 2017E

Global GDP breakdown in 2040E

Other31.9%

U.S.25.5%

Japan10.7%

Germany6.3%France

4.7%China4.5%

$50 trillion

U.K.4.2%

Brazil3.1%

Canada2.7%

Spain2.3%

Italy4.1%

Other34.7%

U.S.21.8%

China12.8%

Germany4.9%France

3.6%

Japan7.8%

$79 trillion

U.K.3.5%

Brazil2.9%India3.2%

Canada2.4%

Italy2.6%

Other34.5%

China19.4%

U.S.18.5%

Japan4.9%

Germany3.5%

India6.4%

$148 trillion

Brazil3.0%

U.K.2.9%

France2.6%

Canada2.0%

Indonesia2.2%

Source: IHS Global insight, as of March 31, 2017


Change in mindset toward outbound M&AJapanese corporations have increasingly embraced outbound M&A to fund growth and advance their strategic objectives. As mentioned previously, they historically did not embrace M&A as a core element of their strategy. M&A was culturally challenging, given the perceived loss of face involved when selling a business. Even today, sales of businesses tend to occur primarily under duress, when companies have encountered financial distress or other fundamental challenges. Depending on the industry, the government might exert its influence to find suitable solutions. The mindset regarding acquiring international businesses has changed, as it has become necessary to enhance competitiveness and growth. The quality of a target’s management, its cultural affinity and its retention, however, remain important considerations.

Access to new markets, products and innovationJapanese corporations are increasingly looking beyond their borders to enter new markets, to obtain new products and capabilities, to access innovation to enhance their competitive positions in the global economy or to find new drivers of growth. The Japanese economy was the envy of the world in the 1980s, and Japanese corporations were the world’s leading manufacturers of consumer electronics, semiconductors, home appliances, automobiles and industrial products. However, in the 1990s, the corporations began to lose competitive ground globally because they did not adapt to a changing global economy as manufacturing moved to cheaper labor markets, new global supply chains were created and technology became an enabler of innovation, new products and greater productivity.

In contrast to 1990, when nearly 50% of top companies by market cap were Japanese, only one Japanese company is among the top 50 today. Approximately one-quarter of leading companies in the U.S. and Europe have remained in the top 50 since 1990. Among them, GE, IBM and P&G now have about five times their 1990 market value, demonstrating their success at adapting to a changing global economy and expanding over the years. Most Japanese firms only doubled in size in that time.

To regain global prominence with a shrinking domestic economy, Japanese corporations must acquire market share by entering new markets or expanding into new growth areas. Relying purely on in-house R&D and organic growth from the domestic market alone is clearly insufficient to achieve growth objectives. For this reason, many companies now seek to supplement internal efforts with M&A.


Exhibit 7

Global ranking by market cap, as of January 1, 1990

Ranking Company Industry1 Country Mkt cap $bn

1 NTT Telecommunications Service Japan 159

2 ExxonMobil Energy U.S. 63

3 GE Industrial U.S. 58

4 TEPCO Energy Japan 56

5 IBM IT U.S. 54

6 Toyota Consumer Discretionary Japan 54

7 Royal Dutch Shell Energy Netherlands 53

8 Nomura HD Finance Japan 47

9 Bank of Japan Finance Japan 47

10 Altria Consumer Staples U.S. 39

11 Nippon Steel Industrials Japan 37

12 Panasonic Consumer Discretionary Japan 33

13 KEPCO Energy Japan 33

14 Hitachi Industrials Japan 32

15 Merck Healthcare U.S. 31

16 BT Group Telecommunications Service U.K. 30

17 BMS Healthcare U.S. 29

18 BP Energy U.K. 29

19 Dupont Materials U.S. 28

20 Toshiba Consumer Discretionary Japan 28

21 Mitsubishi Heavy Indus. Industrials Japan 27

22 Coca-Cola Consumer Staples U.S. 26

23 Nissan Consumer Discretionary Japan 26

24 Kawasaki Heavy Industry Industrials Japan 26

25 Walmart Consumer Staples U.S. 25

26 Chubu Electric Power Energy Japan 25

27 P&G Consumer Staples U.S. 24

28 Chevron Energy U.S. 23

29 Unilever Consumer Staples U.K. 23

30 Tokyo Gas Energy Japan 22

31 Verizon Telecommunications Service U.S. 22

32 Mitsubishi Estate Financials Japan 22

33 Mitsubishi Industrials Japan 22

34 Daiwa Securities Finance Japan 21

35 ANA Consumer Discretionary Japan 21

36 Ford Consumer Discretionary U.S. 21

37 British American Tobacco Consumer Staples U.K. 21

38 Tokyu Corporation Transportation Japan 20

39 Johnson & Johnson Healthcare U.S. 20

40 Sony Consumer Discretionary Japan 20

41 NEC Consumer Discretionary Japan 20

42 Asahi Glass Materials Japan 19

43 Dow Chemical Materials U.S. 19

44 AT&T Telecommunications Service U.S. 19

45 Eli Lilly Healthcare U.S. 19

46 GSK Healthcare U.K. 19

47 Fujitsu Consumer Discretionary Japan 19

48 3M Consumer Discretionary U.S. 18

49 GENERALI Insurance Italy 18

50 American International Insurance U.S. 17

Source: Thomson One, as of March 31, 2017 1 GICS industry classification


Exhibit 8

Global ranking by market cap, as of January 1, 2017

Ranking Company Industry1 Country Mkt cap $bn

1 Apple IT U.S. 638

2 Alphabet IT U.S. 557

3 Microsoft IT U.S. 500

4 Berkshire Hathaway Finance U.S. 404

5 Amazon Consumer Discretionary U.S. 391

6 Facebook IT U.S. 376

7 ExxonMobil Energy U.S. 348

8 Johnson & Johnson Healthcare U.S. 308

9 JPMorgan Chase Finance U.S. 303

10 Wells Fargo Finance U.S. 283

11 Samsung IT Korea 265

12 GE Industrial U.S. 263

13 AT&T Telecommunications Service U.S. 259

14 Alibaba IT China 251

15 Tencent IT China 250

16 China Ind. & Comer. bank Finance China 234

17 China Mobile Telecommunications Service Hong Kong 232

18 BoAM Finance U.S. 228

19 Nestle Consumer Staples Swiss 226

20 P&G Consumer Staples U.S. 224

21 Royal Dutch Shell Energy Netherlands 223

22 PetroChina Company Energy China 221

23 Chevron Energy U.S. 210

24 Walmart Consumer Staples U.S. 205

25 Roche Healthcare Swiss 203

26 Verizon Telecommunications Service U.S. 200

27 Pfizer Healthcare U.S. 193

28 Visa IT U.S. 192

29 Novartis Healthcare Swiss 191

30 Bank of China Finance China 191

31 Toyota Automotive Japan 189

32 CCB Finance China 188

33 Comcast Consumer Discretionary U.S. 180

34 Coca-Cola Consumer Staples U.S. 179

35 Walt Disney Consumer Discretionary U.S. 175

36 Intel IT U.S. 174

37 Anheuser-Busch Consumer Staples Belgium 174

38 Merck Healthcare U.S. 171

39 HSBC Finance U.K. 168

40 Home Depot Consumer Staples U.S. 168

41 IBM IT U.S. 166

42 Oracle IT U.S. 165

43 Citi Group Finance U.S. 159

44 UHC Healthcare U.S. 154

45 Cisco Systems Telecommunications Service U.S. 154

46 TSMC Industrial Taiwan 154

47 Agricultural BOC Finance China 150

48 Philip Morris Consumer Staples U.S. 149

49 Pepsi Consumer Staples U.S. 149

50 Altria Consumer Staples U.S. 139

Source: Thomson One, as of March 31, 2017 1 GICS industry classification


Supportive financing environmentClose-to-zero interest rates

The Bank of Japan has implemented a number of monetary easing policies with the objective of lowering borrowing costs for Japanese corporations, to encourage expansion of investments. The 10-year and 30-year Japanese government bond interest rates have remained low compared with rates in the U.S. and the EU. In January 2016, the Bank of Japan announced it would push interest rates below zero after years of keeping them low but positive. Currently, rates are slightly above zero, and any additional reduction in the rates would cause real interest rates to fall further, providing more favorable financing sources for Japanese corporations.

Exhibit 9

Interest rate on 10-year government bonds

10%

8%

1995 1997 1999 2001 2003 2006 2008 2010 20172012 2015-2%

4%

6%

2%

0%

EUJapan ChinaU.S.

3.293%

2.377%

0.344%0.058%

Source: Bloomberg, as of March 31, 2017

10 | JAPAN CROSS-BORDER M&A JAPAN CROSS-BORDER M&A | 11

Main bank system

Japanese corporations are supported by a banking system, referred to as the “main bank” system, under which corporations are closely connected to their primary lending banks. Usually, main banks can lend to their key customers at extremely low rates, with less rigid covenant terms and more favorable leverage levels.

For Nikkei 225 Japanese corporations, bank borrowings represent 73% of total outstanding debt, while the main source of debt financing for U.S. companies listed on the New York Stock Exchange (NYSE) is bonds.

Exhibit 10 Exhibit 11

Bank and bond debt as % of total debt (Nikkei 225 Japanese companies)

Bank and bond debt as % of total debt (U.S. companies listed on NYSE)

Bonds27%

Bankborrowings

73%

Bonds65%

Other debt35%

Sources: Nikkei FQ and Factset, as of March 31, 2017


Supportive political environmentOver the past decade, the Japanese government has introduced a number of initiatives and policies to support strategic investments, both domestically and overseas. The Development Bank of Japan (DBJ), the Innovation Network Corporation of Japan (INCJ) and the Japan Bank for International Cooperation (JBIC) are government-owned financial institutions whose mandate is to encourage and support Japanese corporations in their pursuit of cross-border investments, providing various financing options and expertise both before and after the acquisition.

DBJ DBJ is owned by the Japanese Ministry of Finance. It provides numerous financial services, including financing, co-investing and advisory services, to help Japanese corporations expand their businesses and achieve their strategic goals, such as acquiring overseas companies.

Illustrative transaction

DBJ’s and LIXIL’s $3.8 billion acquisition of GROHE Group

DBJ’s role

DBJ and LIXIL acquired an 87.5% equity interest in GROHE Group through a 50-50 joint venture. DBJ provided financial support for the acquisition and supplementary resources such as expertise, personnel and domestic and international information networks to help GROHE reinforce its competitiveness and LIXIL to enhance the value of its entire corporate group.

Transaction rationale

LIXIL is a Japanese building materials manufacturer, and its acquisition of GROHE Group, a German sanitary fittings manufacturer, significantly increased LIXIL’s footprint in Europe and helped it to expand in China through GROHE’s bathroom fittings unit, which sells through more than 4,000 distributors in Asia’s largest economy.

Sources: DBJ HP, accessed on March 31, 2017; Dealogic, as of March 31, 2017; press release


INCJINCJ, launched in July 2009, is a unique public-private partnership aimed at promoting innovation and enhancing the value of businesses in Japan. It has an investment capability of approximately $18 billion.


Toshiba’s $2.3 billion acquisition of Landis & Gyr

INCJ’s role

The transaction was the largest joint investment in INCJ history. INCJ invested $920 million for a 40% stake in Landis & Gyr.


Toshiba manufactures advanced electronic and electrical products, and its acquisition of Landis & Gyr, the leading global provider of electricity metering and smart grid solutions, served as the foundation for Toshiba’s Smart Community platform. It established Toshiba as a niche market leader in the global smart grid and advanced metering industries.

Sources: INCJ HP, accessed on March 31, 2017; Dealogic, as of March 31, 2017; press release

JBIC JBIC is a Japanese policy-based financial institution that provides loans, equity investments and guarantees. JBIC provides overseas investment loans to Japanese companies, overseas Japanese affiliates (including joint ventures) and foreign governments or financial institutions that are investing in or providing loans to Japanese business.


Daikin Industries’ $3.7 billion acquisition of Goodman Global Group

JBIC’s role

JBIC provided a $1.5 billion loan to support Daikin in financing its acquisition of Goodman Global Group.


Daikin Industries is a global leader in commercial and industrial air conditioning system solutions, and its acquisition of Goodman Global Group, a leading North American manufacturer of heating, ventilation and cooling systems (HVAC), enabled Daikin to access the U.S. residential and commercial HVAC markets and to launch advanced, environmentally friendly products to expand its existing business.

Sources: JBIC HP, accessed on March 31, 2017; Dealogic, as of March 31, 2017; press release


Adoption of IFRS is more conducive to M&AJapanese corporations have traditionally applied J-GAAP accounting methods. However, the number of companies shifting to IFRS is increasing. One of the reasons for this is to make overseas acquisitions easier to execute from an accounting perspective. Under traditional Japanese standards, goodwill generated in acquisitions must be amortized every year, which dilutes post-acquisition earnings per share (EPS) even for all-cash transactions. Under IFRS, goodwill is no longer amortized and, as a result, improves the pro forma earnings.

Currently, 111 Japanese corporations report under IFRS and 32 have announced their intentions to convert to IFRS. Among the Nikkei 225 companies, 23% have converted to IFRS. Most of these companies are large Japanese corporations that have executed many of the largest outbound transactions over the past 10 years.

Exhibit 12

Select examples of Japanese corporations reporting under IFRS and their completed outbound acquisitionsCompany IFRS conversion date Select large outbound transactions

SoftBank Group Corp. March 2014 Acquisition of Sprint ($36.1bn, October 2012) ARM ($31.8bn, July 2016)

Japan Tobacco Inc. March 2012 Acquisition of Gallaher Group plc ($19bn, December 2006) R.J. Reynolds International ($8bn, March 1999)

Takeda Pharmaceutical Co Ltd. March 2014 Acquisition of Nycomed ($13.7bn, May 2011) Millennium ($8.8bn, April 2008) ARIAD ($5.2bn, January 2017)

Itochu Corp. March 2014 Investment in CITIC ($10.4bn, January 2015)

Asahi Group Holdings Ltd. March 2017 Acquisition of SAB Miller ($7.8bn, December 2016)

Dentsu Inc. March 2015 Acquisition of Aegis Group plc ($4.9bn, July 2012)

Marubeni Corp. March 2013 Acquisition of Gavilon Group LLC ($4.7bn, May 2012)

Astellas Pharma Inc. March 2014 Acquisition of OSI Pharmaceuticals Inc ($4bn, March 2010)

Sources: Japan Exchange Group and Dealogic, as of March 31, 2017

At the same time, companies remain cautious because IFRS requires companies to report goodwill impairments when the value of a purchased asset falls below the value paid at the time of the acquisition.


3. Review of Japanese outbound and inbound M&A activity in 2015, 2016 and Q1 2017

Outbound M&A2015

Outbound M&A volume in 2015 was $89 billion, which represented 45% of total M&A volume that year. Japanese insurers were the leading acquirers of overseas business in 2015 and were responsible for seven of the top 10 deals by deal value. The outbound volume by insurance companies totaled $24.3 billion, 27% of total outbound volume.

Exhibit 13

Top five outbound transactions by deal value in 2015

Announcement date

Target Target country

Target general industry group

Acquirer Deal value ($bn)

Acquired stake %

Jan. 20 CITIC Ltd. China Holding Companies

Itochu Corp; Charoen

Pokphand Group Co Ltd.

10.4 19.7

June 10 HCC Insurance Holdings Inc. U.S. Insurance Tokio Marine Holdings

7.5 100

Feb. 18 Toll Holdings Ltd. Australia Transportation Japan Post Holdings

6.4 100

Sept. 8 Amlin Plc U.K. Insurance MS&AD Insurance Group

5.3 100

Sept. 29 Reynolds American Inc. (Natural American Spirit

business)

U.S. Consumer Products

Japan Tobacco Inc.

5.0 100

Source: Dealogic, as of March 31, 2017

Exhibit 14

Deal value in 2015

Holding Companies 11%

Other 37%

Computers & Electronics 8% Finance 10%

Transportation 9%

Insurance 26%

Source: Dealogic, as of March 31, 2017 Note: Numbers may not sum due to rounding



J.P. Morgan acted as a financial advisor on the following illustrative transaction:

Reynolds American’s $5 billion sale of its Natural American Spirit international business to Japan Tobacco


The transaction strengthened the revenue growth of Japan Tobacco by adding a premium brand that is widely recognized in the domestic market to its portfolio.

2016

Last year produced the second-highest volume ever of outbound M&A by Japanese corporations. Outbound M&A totaled $101 billion — 51% of total M&A volume in 2016 and a 13% increase from 2015. Targeted assets were more diversified, including computers and electronics, food and beverage, healthcare, machinery and insurance.

Exhibit 15

Top five outbound transactions by deal value in 2016

Announcement date




Acquired stake %

July 18 ARM Holdings Plc U.K. Computers & Electronics

SoftBank Group Corp.

31.8 98.6

Dec. 13 SABMiller Ltd. (CEE beer brands)

Czech Republic

Food & Beverage

Asahi Group Holdings Ltd.

7.8 100

Sept. 13 Intersil Corp. U.S. Computers & Electronics

INCJ/Renesas 3.2 100

Mar. 28 Dell Systems; Dell Services; Dell Technology & Solutions

U.S. Computers & Electronics

NTT Group 3.1 100

Feb. 10 Birra Peroni Srl; Koninklijke Grolsch NV; Miller Brands UK Ltd.;

Meantime Brewing

Italy Food & Beverage

Asahi Group Holdings Ltd.

2.9 100


Exhibit 16

Deal value in 2016

Food & Beverage 13%

Other 26%

Insurance 6%

Healthcare 7%

Machinery 7%

Computers & Electronics 41%



Illustrative transactions

J.P. Morgan acted as a financial advisor on the following illustrative transactions:

Intersil’s $3.2 billion sale to Renesas


The acquisition created a highly synergistic, complementary product portfolio of system solutions targeted at large opportunities in the automotive, industrial and internet of things (IoT) markets.

NTT DATA’s $3.1 billion acquisition of Dell Services


The deal was a transformational acquisition for NTT DATA (largest M&A deal in its corporate history), significantly increasing NTT DATA’s presence in North America and strengthening its global delivery network.

Q1 2017

Outbound M&A volume in the first quarter was $18 billion, 53% of total Q1 M&A volume. Extrapolating the full-year volume from the first quarter results in a total outbound volume of $74 billion (provided there is no cyclicality). The majority of activity in Q1 was in the healthcare and real estate sectors. The two largest transactions were Takeda Pharmaceutical’s $5.7 billion acquisition of ARIAD Pharmaceuticals and SoftBank Group’s $3.3 billion acquisition of Fortress Investment Group.

Exhibit 17

Top five outbound transactions by deal value in Q1 2017

Announcement date




Acquired stake %

Jan. 9 Ariad Pharmaceuticals Inc.

U.S. Healthcare Takeda Pharmaceutical

Co Ltd.

5.7 100

Feb. 14 Fortress Investment Group LLC

U.S. Finance SoftBank Group Corp.

3.3 100

Jan. 30 WeWork Companies Inc. U.S. Real Estate SoftBank Group Corp.

3.0 Undisclosed

Feb. 28 Intelsat SA U.S. Telecom- munications

SoftBank Group Corp.

1.7 39.9

Mar. 23 Vanderlande Industries BV

Netherlands Machinery Toyota Industries Corp.

1.3 100



Exhibit 18

Deal value in Q1 2017

Real Estate 19%

Other 14%

Machinery 7%

Finance 18%

Telecommunications 9%

Healthcare 33%


Illustrative transactions

J.P. Morgan acted as a financial advisor on the following illustrative transactions:

ARIAD Pharmaceuticals’ $5.7 billion sale to Takeda Pharmaceutical


Allows ARIAD to accelerate its discovery, development and delivery of precision therapies to patients with rare cancers by combining Takeda’s global resources with ARIAD’s products, pipeline and people. Creates a stronger global solid tumor franchise, positioning the combined company for sustainable long-term growth in oncology.

SoftBank Group’s $3.3 billion acquisition of Fortress Investment Group


SoftBank’s acquisition of Fortress Investment Group combines SoftBank’s leading global technology investing capabilities, alongside its SoftBank Vision Fund, with Fortress’ private equity and credit investing expertise.


Inbound M&A2015

Inbound M&A volume totaled $25 billion and represented 22% of cross-border and 12.8% of total M&A volume in 2015. The year was highlighted by one large transportation transaction and a number of healthcare transactions. The primary driver of inbound M&A was the sale of non-core assets by Japanese pharmaceuticals to reorganize their business portfolios to focus more on R&D in specific therapeutic areas. Sales of non-core assets by Astellas and Takeda ranked as the fourth- and fifth-largest deals, as shown in the table below. The other transactions were mainly acquisitions of real estate assets by foreign companies.

Exhibit 19

Top five inbound transactions by deal value in 2015

Announcement date

Target Target sector

Acquirer Acquirer region Deal value ($bn)

Acquired stake %

Nov. 10 New Kansai International Airport Co Ltd.

Transportation VINCI SA; ORIX Corp.

Europe 13.6 100

Sept. 28 USJ Co Ltd. Leisure & Recreation

Comcast Corp. North America 4.9 51

Jan. 30 Meguro Gajoen Co Ltd. Real Estate LaSalle Investment

Management Inc.

North America 1.2 100

Nov. 11 Astellas Pharma Inc. (global dermatology business

including Protopic, except for Protopic in Japan)

Healthcare Leo Pharma A/S

Europe 0.7 100

Dec. 16 Takeda Pharmaceutical Co Ltd. (respiratory business)

Healthcare AstraZeneca Plc

Europe 0.6 100


Exhibit 20

Deal value in 2015

Leisure & Recreation 20%

Other 2%Computers & Electronics 4%

Healthcare 11%

Real Estate 9%

Transportation 54%





LEO Pharma’s $725 million acquisition of Astellas’ dermatology portfolio


The dermatology portfolio was a strong strategic fit with LEO Pharma’s focus areas of prescription topical drugs for eczema, acne and skin infections; strengthened the company’s global position in dermatology in China and Russia; and added critical scale in many other markets.

2016

Inbound transaction volume totaled $12 billion, representing 10.4% of cross-border and 5.9% of total M&A volume in 2016. Hon Hai Precision Industry acquired Sharp Corp. in pursuit of synergies between Hon Hai’s global production and marketing system and Sharp’s advanced R&D capability. The deal marked one of the largest inbound acquisitions in history. Qualcomm’s forming a joint venture with TDK is another example of technological collaboration that enables Qualcomm’s RFFE business unit to deliver RF front-end modules and RF filters in a fully integrated system for mobile devices and fast-growing business segments such as IoT, automotive applications and connected computing. A number of transactions took place in the healthcare sector, including Novartis’ sale of 14 prescription brands in Japan to Sun Pharmaceutical and Shionogi’s sale of 21 off-patent products to Lupin.

Exhibit 21

Top five inbound transactions by deal value in 2016

Announcement date



Acquired stake %

Feb. 25 Sharp Corp. Consumer Electronics

Hon Hai Precision

Industry; SIO International (57.5%/8.41%)

North Asia 7.9 66.06

Jan. 13 TDK Corp. (RF component supply division)

Computers & Electronics

Qualcomm Inc. North America 1.4 51

Mar. 17 Toshiba Lifestyle Products & Services Corp.

Consumer Electronics

Midea Group Co Ltd.

North Asia 0.5 80.1

Mar. 29 Novartis Pharma Co Ltd. (14 prescription brands

in Japan)

Healthcare Sun Pharmaceutical Industries Ltd.

Indian subcontinent

0.3 100

May 26 Carna Biosciences Inc. (worldwide rights to

develop and commercialize cancer drug candidate AS-141 targeting CDC7)

Healthcare ProNAi Therapeutics

Inc.




Exhibit 22

Deal value in 2016


Other 3%Real Estate 2%

Healthcare 6%Auto/Truck 2%

Consumer Electronics 73%




Hon Hai Precision Industry’s $3.5 billion acquisition of Sharp Corp.


Gaining capital from Hon Hai provided Sharp with sufficient resources to develop OLED display as a next-generation display product. Hon Hai will obtain access to Sharp’s brand and broad IP portfolio, shifting its business upstream in the value chain.


Q1 2017

Q1 2017 inbound M&A volume totaled $3.2 billion — 14.9% of cross-border and 9.3% of total Q1 M&A volume. Extrapolating the full-year volume from the first quarter results in a total inbound volume of $13 billion (provided there is no cyclicality). In Q1 2017, Comcast announced its intention to acquire the remaining 49% stake in USJ. The acquisition aims to align USJ with Comcast’s ongoing investment strategy for its theme parks, including plans to open major attractions based on its blockbuster film franchises and other world-class intellectual property (IP) to boost attendance and revenue. Several asset acquisitions by overseas REITs and real estate investment firms also took place in Q1 2017.

Exhibit 23

Top five inbound transactions by deal value in Q1 2017

Announcement date



Acquired stake %

Feb. 28 USJ Co Ltd. Leisure & Recreation

Comcast Corp. North America 2.3 49

Feb. 20 Four shopping centers Real Estate CapitaLand Ltd. Southeast Asia 0.4 100

Mar. 27 INPEX Natuna Ltd. Oil & Gas Encore Ltd. Southeast Asia 0.2 100

Feb. 2 Oki Sensor Device Corp. Computers & Electronics

Standex International

Corp.


Jan. 18 Property Portfolio (Kinshicho Prime Tower)

Real Estate Invesco Ltd. North America 0.1 100


Exhibit 24

Deal value in Q1 2017

Other 0.5%Dining & Lodging 1%

Real Estate 20%


Oil & Gas 5%

Leisure & Recreation 68%

Source: Dealogic, as of March 31, 2017 Note: Numbers may not sum due to rounding


4. Shareholder activism in Japan

Activism is one dimension of cross-border M&A activity. Japan has historically been one of the most targeted geographies outside the U.S. and has, along with some of the other more mature economies in the region, accounted for the bulk of activity in Asia. In 2016, 18 activist campaigns launched against Japanese companies, representing 20% of all activism activity in the region for the year.

Most campaigns to date have been launched by domestic investors. Asia-based funds account for 58% of all activism activity in Asia and 54% in Japan since 2011.1 However, some of the world’s most aggressive activist funds, including The Children’s Investment Fund and most recently Third Point, have targeted Japanese companies with demands mostly centered on value, ranging from return of capital to shareholders to portfolio streamlining and optimization.

Recent regulatory reform in Japan has further legitimized shareholder activism. Japan’s Corporate Governance and Stewardship codes aim to shake up companies by shining a spotlight on board independence and by empowering investors to be more active by increasing engagement with portfolio companies and seeking higher returns. Investors have already begun capitalizing on the heightened interest in corporate governance, denouncing companies that act against the fundamental principles established by the Corporate Governance Code.

Activists have recently been credited with pushing companies toward shifts in strategy, return of capital to shareholders, improvement of investor communications and renouncing nepotism. Even though shareholder activism in Japan has not yet experienced the level of success the strategy has had in the U.S., recent high-profile wins signal a changing attitude in both the investors, who have become more assertive, and the companies, many of which have proved increasingly open to outside intervention.

As is the case with investor activism outside the U.S., activism in Japan is expected to continue to increase and become a fixture in the Japanese financial market.

1 SharkRepellent, Activist Insight, Mergermarket, press articles as of April 18, 2017. Represents the following campaign types: board control and representation, enhance corporate governance, maximize shareholder value, remove director(s), remove officer(s) and vote/activism against a merger.


5. Outlook for M&A activity in Japan

Outbound M&A Japanese corporations will continue to pursue overseas acquisitions with support from the government and banks.

Target sectors Consumer

Domestic markets are heavily affected by the shrinking population, and companies will seek to increase market share in a growing global economy.

Precedent transactions:

• Japan Tobacco’s $19 billion acquisition of Gallaher Group

• Suntory’s $16 billion acquisition of Beam

• Asahi Group’s $7.8 billion acquisition of SAB Miller

Financial institutions/Insurance

Similar to the consumer sector, financial institutions and insurers are also directly affected by the aging population of Japan and will continue to make outbound acquisitions.


• Tokio Marine Holdings’ $7.5 billion acquisition of HCC Insurance

• Japan Post Holdings’ $6.4 billion acquisition of Toll Holdings

• MS&AD Insurance Group’s $5.3 billion acquisition of Amlin plc

• Meiji Yasuda Life Insurance’s $5 billion acquisition of StanCorp Financial Group

Healthcare

In 2015, Japan’s Ministry of Health, Welfare and Labor announced a comprehensive strategy to strengthen the pharmaceutical industry. The strategy promotes expansion of healthcare businesses through outbound M&A.


• Takeda’s $13.7 billion acquisition of Nycomed, $8.8 billion acquisition of Millennium and $5.7 billion acquisition of ARIAD

• Astellas’ $4.1 billion acquisition of OSI Pharmaceuticals

Technology

Japanese companies will continue to gain access to additional intellectual property, capabilities and innovation through outbound acquisitions.


• NTT DATA’s $3.1 billion acquisition of Dell Services

• Renesas’ $3.2 billion acquisition of Intersil



Target geographiesOutbound M&A is expected to be directed primarily to the U.S. and Europe, although some activity is likely in emerging markets such as Southeast Asia. Japanese corporations are looking for mature companies with stable cash flow, strong brand recognition and access to a large, growing market.

Potential risks could limit outbound activity. They include asset price inflation, risk of goodwill impairments under IFRS and uncertainties associated with post-acquisition integration.

Inbound M&AInbound M&A is expected to be a small percentage of overall cross-border activity. Historically, such activity has been limited to distressed situations such as Hon Hai’s acquisition of Sharp Corp. However, Japanese corporations, in pursuit of corporate clarity, may seek to divest non-core assets. Rationalization of business portfolios will provide buy-side opportunities for foreign corporations as well as domestic and foreign private equity firms. It will likely begin with previously acquired overseas assets and subsidiaries before considering domestic subsidiaries or business units.


6. Considerations for international sellers and buyers

Based on J.P. Morgan’s experience advising Japanese counterparties, we have identified points for consideration by international companies seeking to either sell to Japanese buyers or acquire Japanese assets.

Considerations for international sellersAttractive acquirers

Motivated buyers:

Given the realities of the domestic economy and the imperative to expand overseas and gain access to new markets, know-how, new products and intellectual property, Japanese corporations are highly motivated buyers. Generally, if they indicate an interest or participate in an auction, they have done work analyzing the opportunity and have built a preliminary consensus internally to support the company’s pursuit of the acquisition.

Valuation:

Similar to other Asian companies, Japanese acquirers have the capacity to be aggressive on value and to find value in synergies and share that value with the seller. In addition, Japanese corporations are more focused on long-term returns and, compared with international companies, they have relatively low hurdle rates and high debt capacity, which allow them to be aggressive on value.

Financing:

Low-cost debt and government financing support, as discussed in Section 2, enable Japanese corporations to be aggressive on price if they are highly motivated buyers. Japanese banks allow higher debt leverage levels than international banks.

Process expertise:

Many Japanese companies have had experience acquiring businesses overseas, specifically in the U.S. and Europe, and they know how auction processes work. Despite the need to account for buyers managing their internal approval processes and possibly providing additional access before or during the process, Japanese buyers generally keep to the process timeline and compete aggressively with other buyers.


Building in extra time for Japanese buyers

Internal approvals:

Many Japanese companies have formal internal, consensus-driven approval processes and spend time socializing ideas with their board members, educating them on the potential target during the due diligence process. These internal meetings have rigid timelines and dates set far in advance. Ad hoc board meetings are uncommon in Japan; however, Japanese companies have demonstrated the ability to meet accelerated timelines during competitive auctions, if motivated.

Relationship building:

International sellers should plan their process timelines to include both pre-marketing and relationship building with Japanese buyers before launching a formal process. Culturally, there is an emphasis on in-person meetings, which requires additional time for international sellers. Language barriers, cultural differences and multiple time zones should be taken into account when creating a realistic timeline for sale processes involving Japanese buyers.

Due diligence:

During the due diligence process, Japanese buyers often wish to spend time with a target company’s management team to educate themselves on the business and sector, assess the management capabilities and determine whether the team in place can be relied upon to manage the business after the acquisition. In many cases, retention of the current management team is a priority for Japanese buyers so a target company’s management should plan to allocate time for face-to-face meetings with Japanese buyers.

Considerations for international buyersCommunication with the Japanese government:

Close communication with the Japanese government is required as it adopts a conservative stance on selling to foreign buyers’ businesses that are considered significant to supporting the Japanese economy. In addition, approval from the Ministry of Economy, Trade and Industry is required when acquiring companies that make products related to national security and aerospace. Government filing requirements may be triggered depending on the size, form and substance of the deal.

Post-acquisition employment:

International buyers often plan to reduce headcount at the target company to improve cost margins. However, both cultural and legal protections for employees exist in Japan, and the standards for termination of redundant employees are difficult for an acquirer. International buyers need to address the concern of post-acquisition employment when communicating with Japanese management teams.


Fiduciary duty:

Unlike U.S. companies, directors of Japanese corporates do not have a direct fiduciary duty to shareholders. When making an offer to a Japanese corporation, the target’s board will make a decision based on its interpretation of the best interests of the company’s stakeholders, which include shareholders, employees, customers, lenders and other constituencies. Therefore, value maximization for shareholders is not the only factor that the board will consider when an offer is received. This is one of the reasons that unsolicited transactions are rare and mostly unsuccessful in Japan.

Shareholders:

Even after the Corporate Governance Code was introduced in 2015, a material portion of public companies’ shares remain owned by “friendly shareholders,” and in many cases they own each other’s shares. These cross-shareholdings enable boards to maintain their position and allow them to focus on long-term strategy. Furthermore, a significant portion of the shares are held by retail investors who might not make economically rational decisions if they have a strong attachment to the company’s brand and products. These are additional reasons that unsolicited transactions have been unsuccessful in Japan.


Key takeaways

The recent substantial increase in Japan cross-border M&A activity will be sustained by the need for Japanese corporations to increase growth they are unable to generate domestically. In doing so, they will continue to use cross-border acquisitions to enter new markets, obtain new products and capabilities and access innovation to enhance global competitiveness and market share.

Outbound M&A activity will likely focus on the consumer, financial institutions, healthcare and technology sectors, with the U.S., Europe and South Asia as the primary target markets. For international companies, Japanese corporations are attractive buyers because they generally are motivated, experienced in auction processes and can be aggressive on value. From a process perspective, however, sellers should remain aware of the need to build in extra time to enable Japanese buyers to obtain internal approvals, complete due diligence and engage in relationship building.

Increased divestiture of non-core assets by Japanese conglomerates in the future will provide additional inbound M&A opportunities for international buyers. Buyers should closely communicate with the Japanese government and remain mindful of post-acquisition employment considerations and different shareholder dynamics in Japan.


About J.P. Morgan M&A advisory solutions

We advise corporations and institutions of all sizes on their most complex strategic needs, in their home markets and around the world. Whatever your strategic challenge or opportunity, J.P. Morgan provides a full M&A offering to address your needs. Drawing upon our in-depth industry-specific expertise and regional market acumen, we can evaluate your business with a long-term view to provide a tailored, comprehensive and integrated solution.

We have a track record of strategic defense. Our scale and breadth of experience with shareholder activism mean we provide a differentiated approach toward defense for clients. We have successfully engaged with all the major activists in some of the most sophisticated campaigns around the world, and our deep understanding of activist tactics and firsthand knowledge bring experience to your defense. As we advise only corporate clients and do not counsel any shareholder activist campaigns, our interests are fully aligned with your company’s priorities.

Clients benefit from J.P. Morgan’s global experience leveraging our specialized advice, swift strategic execution and strong resources to help you seize opportunities and solve problems.

Our bespoke solutions combine:

• In-depth knowledge of sector and market dynamics with M&A bankers based locally in most major markets globally.

• Innovative advice on valuation, transaction structures, and deal tactics and negotiations.

• Rigorous execution delivered with responsive and agile service.

• Ability to partner with product experts across our full range of competencies, including comprehensive financing through our debt and equity issuance platforms, as well as derivatives and treasury services, such as escrow services.

J.P. Morgan provides M&A advisory solutions across the full strategic life cycle of our clients:

Strategic expansion

• Acquisitions, including cross-border opportunities

• Mergers and joint ventures

Enhancing business value

• Corporate combinations

• Divestures

• Capital restructuring projects

• Spinoffs and other repositionings

Shareholder strategy

• Defense preparations for publicly announced and non-public approaches

• Dedicated shareholder activism advice


Select J.P. Morgan-advised Japan cross-border M&A transactions

Jan 2017 $5.7bn

Advisor to ARIAD Pharmaceuticals on its sale to Takeda Pharmaceutical

Sep 2015 $5.0bn

Advisor to Reynolds American on its sale of Natural American Spirit International business to Japan Tobacco

Feb 2016 $3.5bn

Advisor to Hon Hai Precision Industry on its acquisition of Sharp Corporation

Sep 2016 $3.2bn

Advisor to Intersil on its sale to Renesas

Mar 2016 $3.1bn

Advisor to NTT DATA on its acquisition of Dell Services

Oct 2016 $1.4bn

Advisor to Ganymed on its sale to Astellas Pharma

Jan 2015 $840mm

Advisor to Itochu on its sale of PrimeSource Building Products to Platinum Equity

Mar 2015 $550mm

Advisor to Nippon Yusen Kabushiki Kaisha on its sale of Crystal Cruises to Genting HK

Nov 2015 $725mm

Advisor to LEO Pharma on its acquisition of Astellas’ dermatology portfolio

June 2016 $380mm

Advisor to Sequent Medical on its sale to Terumo

Dec 2016 $510mm

Advisor to Asahi Glass on its acquisition of CMC Biologics

Oct 2016 $500mm

Advisor to Asahi Glass on its acquisition of Vinythai

July 2016 $733mm

Advisor to Nichi-Iko on its acquisition of Sagent Pharmaceuticals

Feb 2017 $3.3bn

Advisor to SoftBank on its acquisition of Fortress Investment Group

Dec 2016 $925mm

Advisor to Sumitomo Corporation on its acquisition of Fyffes

Oct 2015 $498mm

Advisor to Mitsui Gás e Energia do Brasil on its acquisition of 49% stake in Gaspetro from Petrobras


Notes


This material (including market commentary, market data, observations or the like) has been prepared by personnel in the Mergers & Acquisitions Group of JPMorgan Chase & Co. It has not been reviewed, endorsed or otherwise approved by, and is not a work product of, any research department of JPMorgan Chase & Co. and/or its affiliates (“J.P. Morgan”). Any views or opinions expressed herein are solely those of the individual authors and may differ from the views and opinions expressed by other departments or divisions of J.P. Morgan. This material is for the general information of our clients only and is a “solicitation” only as that term is used within CFTC Rule 1.71 and 23.605 promulgated under the U.S. Commodity Exchange Act.

RESTRICTED DISTRIBUTION: This material is distributed by the relevant J.P. Morgan entities that possess the necessary licenses to distribute the material in the respective countries. This material is proprietary and confidential to J.P. Morgan and is for your personal use only. Any distribution, copy, reprints and/or forward to others is strictly prohibited.

This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute investment, legal or tax advice, nor does it constitute an offer or solicitation for the purchase or sale of any financial instrument or a recommendation for any investment product or strategy.

Information contained in this material has been obtained from sources believed to be reliable but no representation or warranty is made by J.P. Morgan as to the quality, completeness, accuracy, fitness for a particular purpose or non infringement of such information. In no event shall J.P. Morgan be liable (whether in contract, tort, equity or otherwise) for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction. All information contained herein is as of the date referenced and is subject to change without notice. All market statistics are based on announced transactions. Numbers in various tables may not sum due to rounding.

J.P. Morgan may have positions (long or short), effect transactions, or make markets in securities or financial instruments mentioned herein (or options with respect thereto), or provide advice or loans to, or participate in the underwriting or restructuring of the obligations of, issuers mentioned herein. All transactions presented herein are for illustration purposes only. J.P. Morgan does not make representations or warranties as to the legal, tax, credit, or accounting treatment of any such transactions, or any other effects similar transactions may have on you or your affiliates. You should consult with your own advisors as to such matters.

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