Goldman Sachs is taking a punt on the popular Japanese pinball-style game of pachinko by buying a 9 per cent stake in Aruze Corporation, one of Japan’s biggest makers of pachinko machines, writes the FT’s Louise Lucas in Tokyo.
The stake, which would cost around Y26bn based on Thursday’s close, builds on Goldman’s chunky Japanese portfolio. The US investment bank is one of the biggest investors in the world’s second-biggest economy, having spent around $3bn on acquisitions in the last couple of years. Local investments stretch from golf courses and onsen, Japanese hot spring resorts, to banks and ailing electronics manufacturers.
Owning a slice of Azure will also give Goldman’s exposure to global gambling dens, including Las Vegas, through the Japanese manufacturer’s 24 per cent stake in Wynn Resorts. There have been times when the Wynn stake exceeded Azure’s market capitalisation, and even by Thursday’s close — before Goldman Sachs announced its plans — Azure was trading at a premium of just 6 per cent to the Wynn stake, according to Reuters data.
The bet on pachinko comes as many analysts are forecasting declining fortunes for the $250bn turnover industry. Government regulatory changes, designed to replace hard-core gamblers with more modest players by reducing pay-outs at machines, are expected to result in a culling of Japan’s 15,000 or so pachinko parlours.
Machinery makers are already suffering falling sales and waning profitability, or even losses, as Lex noted in February. Aruze, which in February forecast an ordinary loss of Y5.5bn for the year ending March 31, widened its projection on Tuesday to Y6.3bn.
However, Goldman reckons the new regulations could be positive for machinery makers since a greater number of more recreational-style players will require more machines. “Pachinko is at an interesting inflection point,” said Ankur Sahu, head of principal investment area at Goldman Sachs Japan.
Goldman will buy the stake from Aruze’s chairman, Kazuo Okada. The US investment bank will work with management but is not seeking a board seat, and its involvement will be far more muted than is the case with some of its bigger investments, such as the troubled Sanyo Electric.
Aruze shares, which for most of last year lagged the broader Jasdaq market on which it is listed, have out-performed more recently. The shares rose 10 per cent on Friday to Y4,000 on news of Goldman’s planned investment.
