Buying Maruai and two affiliates for ¥4.45bn (2005)

Reducing dependence and earning money are different things

As an exercise in lowering, numerically, the company’s dependence on a single product, the acquisition succeeded. Adding dried goods and gift sets brought tuna down to around forty-five per cent of consolidated sales. Nor were the terms unfavourable as a transaction: a succession case brought to Hagoromo by the seller, taken on at a price below net assets. For the first five years after the deal, the amortisation of negative goodwill lifted ordinary profit and gave the balance sheet some slack.

But a falling ratio and a new pillar that earns are not the same thing. The bonito-flake and nori businesses had thin margins before the acquisition and did not recover their earning power under Hagoromo Foods; they were worked through in order — reorganisation of the sales arm, absorption into the parent, then impairment of the plant. The brand and distribution strength built in canning does not appear to have carried over to dried goods, where both the raw materials and the way of selling are different. When diversification is undertaken in order to correct a dependence, by what measure is it judged to have succeeded? This decision remains material for re-examining that standard.