This is an audio transcript of the FT News Briefing podcast episode: ‘Japan opens for (foreign) business’
Marc Filippino
Good morning from the Financial Times. Today is Thursday, August 22nd and this is your FT News Briefing. China might put PwC in time out and a potential takeover of 7-Eleven’s parent company is making everyone in Japan grab their popcorn and Slurpees. Plus, the president of Mexico is trying to fire federal judges and now they’re on strike. I’m Marc Filippino, and here’s the news you need to start your day.
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PwC accountants in China might want to consider taking up a side hustle. The firm expects that it will be banned from doing a lot of business in the country for six months, and it could go into effect in just a few weeks. Beijing is mad because of the situation with PwC’s former client Evergrande. The Chinese property developer defaulted on its debts in 2021. Before it went bust though it inflated its revenues by almost $80bn. And here’s why PwC China is in trouble — they didn’t raise the alarm. The ban would be Beijing’s toughest-ever action on a Big Four firm. Plus, there’s talks of a large fine to follow. Now it’s not game over for PwC China. Business should resume in March but as the country’s biggest accounting firm, we’ll probably see major changes in the Chinese audit landscape.
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Mexico’s president only has a few weeks left in office, but before he leaves, he wants to fire the country’s top judges. So yesterday they packed up their bags and walked out of their courtrooms. They’re protesting Andrés Manuel López Obrador’s plans to overhaul the judiciary. My colleague Christine Murray has been checking in on the strike. She joins me now. Hey, Christine.
Christine Murray
Hi, Marc.
Marc Filippino
All right Christine, so walk me through López Obrador’s plans for electing judges. What exactly is he looking to do?
Christine Murray
So earlier this year, President López Obrador proposed a package of 18 changes to the constitution, including this reform to the judiciary, which is one of the most controversial. And essentially, it will replace all federal judges and magistrates with elected ones, including the entire Supreme Court in one go next year. To change the constitution in Mexico you need a two-thirds majority in Congress. And in the June elections that Mexico held, the ruling Morena party won a landslide and increased their majority in Congress. So from the 1st of September, they will have a near supermajority. And the president has said that he wants to push this reform through in the month that he will overlap with the new Congress until the 1st of October, when president-elect Claudia Sheinbaum takes over.
Marc Filippino
And why does López Obrador want to replace these judges?
Christine Murray
President López Obrador says that the judiciary is fundamentally corrupt and protects the interests of the elite and criminals in the country. That’s why he says he wants to do this reform. If you ask opponents of the reform and members of the judiciary, they will tell you that they think it’s a way of the president and his party gaining more leverage and control over the judiciary, which has been very instrumental in stopping some of his reforms that he has tried to pass in the last couple of years.
Marc Filippino
So it sounds like this is going to upset a fair amount of people. What has the reaction in Mexico been like?
Christine Murray
So I went to the Palace of Justice at San Lazaro, as it’s known, which is just in the east of Mexico City.
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Christine Murray
I’m here outside the headquarters of the federal justice system. There are workers, judges, magistrates. Some of them are singing in groups, waving Mexican flags. Some of these workers have been on strike since Monday. And the judges and magistrates, this is their first day of an indefinite walkout.
And I spoke to a magistrate, Fernando Rangel Ramírez, who told me that the job that he does doesn’t require political feeling, but instead years of study.
To be able to deal with and resolve difficult cases. He, like many others, said that there are obviously many problems in Mexico’s justice system, but that any solution should be holistic and include all of the different actors involved in the justice system, not just the mass firing of judges.
Marc Filippino
Christine, what is this going to do to Mexico’s judicial system? Because I got to imagine that without judges it’s going to grind to a halt.
Christine Murray
So the federal judiciary has left a skeleton staff in place to deal with emergency or life-threatening matters. So some cases will still be heard, but the vast majority of cases are stopped until further notice. And that’s just going to increase the backlog across Mexico’s federal justice system.
Marc Filippino
So the longer this goes on, the more and more backed up everything gets. And meanwhile, you know, Mexico is about to swearing its new president. How does Sheinbaum view the reforms?
Christine Murray
President-elect Claudia Sheinbaum has backed the reform. But if this reform is passed, she will be the one tasked with implementing it. And many legal experts and political analysts are saying that this is a very complicated way for her to begin her six-year presidential term. And when she takes office in October, is going to have to deal with a slowing economy, a large fiscal deficit and just this week, several US business organisations said they had deep concerns that these reforms could hurt bilateral trade. So she’s got a long to-do list. And these reforms will just add to and complicate that existing to-do list and could bog her down for a number of years.
Marc Filippino
Christine Murray is the FT’s Mexico and Central America correspondent. Thanks for the update, Christine.
Christine Murray
Thank you.
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Marc Filippino
7-Eleven stores are everywhere in the US. I mean, there is one literally right around the block for me, and it’s where you go to get your blue raspberry Slurpees or your hot dogs or fill up on gas. But the chain is actually owned by a Japanese company called Seven & i Holdings, and it’s worth about $36Bn. Now, a Canadian company recently put in a bid to buy it, and it would be the biggest foreign takeover of a Japanese business ever. Leo Lewis is the FT’s Asia business editor. He’s here to tell me more about what this means for Japan’s mergers and acquisitions scene. Thanks for joining us, Leo.
Leo Lewis
Thank you.
Marc Filippino
So tell me a little bit more about this takeover bid for 7-Eleven. What are the details?
Leo Lewis
Well, at the moment the details are relatively few. But what we do know is that the Canadian retailer Alimentation Couche-Tard does seem to have made some sort of approach in which it would like to buy all the shares in Seven & i Holdings, which is the company that operates the 7-Eleven convenience store chain and also owns some supermarkets and a big stake in a bank in Japan. And so it’s a big kind of retail conglomerate. And the scale of this deal, which is potentially the biggest-ever takeover of a Japanese company by a foreign buyer. It’s not just the scale that’s interesting. It’s the fact that it’s unsolicited. And that really breaks new ground for Japan, which has traditionally rejected unsolicited offers and not really entertained them.
Marc Filippino
Now, you mentioned that these kinds of unsolicited bids have been rejected in the past. What’s changed now?
Leo Lewis
So there’s a lot that’s clearly gone on in the background to this. We have good reason, through our reporting, to think that the Canadian company has made a number of kind of informal approaches over the years, actually. But what has changed in the interim is that last year there was an upgrade to the M&A guidelines in Japan. and the change essentially meant that if there was a bona fide serious offer on the table from a buyer, the boards of listed Japanese companies had a kind of obligation to treat those seriously. And treating those seriously involves forming a special committee to look into whether the bid is something the board might recommend or defend itself against, or whatever. And what Seven & i has done is essentially to follow the letter of those recommendations and put the special committee together, and we will wait to see what it says.
Marc Filippino
So, Leo, why did Japan change its guidelines for mergers and acquisitions in the first place? Was there a problem?
Leo Lewis
Yeah. So Japan is very, very big and very unwieldy. And one of the problems that that creates is that there hasn’t been a great deal of consolidation. And so the government has wanted to encourage defensive consolidation so that more Japanese companies will survive and more Japanese companies will sort of become viable into the future. So the rules were changed to make that sort of consolidated M&A more attractive, more doable. What I don’t think the government perhaps bargained for was the idea that this essentially put Japanese companies up for sale to any foreign bidder that had the money and the inclination to come in.
Marc Filippino
I see. So how will these changes to the guidelines over M&A affect the corporate landscape in Japan?
Leo Lewis
So it is very early days, but if you think about it, there is a great deal in Japan that would be very attractive to a buyer that for many years, many decades has essentially been off limits. So, you know, you think of big famous Japanese corporate names. And if the implication of what has happened here with Seven & i is, look, there’s no real limit on what could be up for sale, then yeah, there’s going to be a nervousness there. Yeah. There’s a revolution really that’s been triggered. It’s a test case of something that has been brewing for a while, and all eyes are now going to be on how that test runs its course.
Marc Filippino
Leo Lewis is the FT’s Asia business editor. Thanks so much, Leo.
Leo Lewis
Thank you.
Marc Filippino
You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
