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Prime Mover Magazine

New details on multi-billion Toll writedown emerge

New background information on Japan Post’s $4.7 billion writedown on Toll has surfaced that could shed more light on the Melbourne company’s current situation and future outlook.

At the end of April, Toll parent company, Japan Post, had to report a ¥40 billion (A$480 million) loss for its first full financial year as a listed company, arising from a ¥400.3 billion (A$4.8 billion) writedown on the Australian logistics business it bought for a record $6.5 billion in 2015.

According to Reuters journalists, Thomas Wilson and Byron Kaye, the massive impairment charge has drawn into focus the deal's rich premium, speed and timing, “raising questions over Japan Post's due diligence and its plan to integrate Toll's sprawling business into a global conglomerate spanning postal delivery, banking and insurance”.

Wilson and Kaye fiund that Japan Post had kept key advisers working on Japan's biggest IPO out of the loop while working on the Toll deal, and ignored warnings that the 49 per cent premium offered on Toll's share price was too steep.

The duo said Japan Post "acknowledged" concerns over the due diligence process and its management of the company, but blamed the writedown on “worse-than-expected” economic pressures.

"During the acquisition, due diligence was implemented taking into account the opinion of accounting, taxation, legal and financial experts," Hideo Murata, a spokesman for Japan Post, told Reuters.

"Commodity prices fell faster than we had thought, and we couldn't imagine the direct impact on Toll's earnings."

Reuters research, meanwhile, found that Toll was facing internal issues – brought about by its ambitious growth strategy – that should have been taken more seriously.

“Between 2001 and 2013 Toll had bought over 20 companies from Southeast Asia to Africa, leaving it wrestling with duplication of technology, staff and, in the case of couriers, entire lines of business,” they said – indicating both Japan Post and key Toll staff knew the web of acquisitions would be difficult to manage.

As a result, future course correction measures are now focusing on just that, with Japan Post announcing a renewed focus on “priority regions and businesses", extensive cost reductions, as well as “customer-centricity, improvement of quality of service, differentiation and fostering an integrated sales-force.”

Jeffrey Luckins, an audit director and due diligence specialist at Australian accounting firm William Buck, summarised that Japan Post likely missed the big picture in the lead-up to the deal.

"Did they have the right experts on hand? Did they ask the right questions? Did they bring economists in? If they've written off (almost) the entire value of the investment, one assumes that the assumptions that have been made ... were incorrect."

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