This office has now completed its review of the recent survey of
research and development (R&D) by Japanese firms compiled by the
Science and Technology Agency, the results of which are the subject of
this memorandum. Of the companies surveyed, 70% maintain that their
research is equal or superior to that of leading firms in the U.S. and
Europe, although only 18.2% consider themselves in unchallenged top
position. Furthermore, the remaining 30% believe their research is
inferior or lagging behind the West (ref. to Table 1). Of those who
reported inadequate R&D in high technology areas, the following reasons
were given . . .
_"Whoever wrote this is just poor-mouthing." He flipped on through the
sheets, then looked up. "Saying he needs more money for basic research.
I hear this kind of stuff all the time. Hell, Japan already spends
nearly twice what we do per capita on nonmilitary R&D. What does he
want?"
"Keep reading, Jack, and you'll see that the main R&D he's pushing is
in computers and semiconductors. It ties in exactly with Ikeda's
targets. This is backup consensus for the big drive."
"You still haven't told me anything I didn't already suspect." He
tossed the pages onto a side table. "So how about answering a few less-
obvious questions?" "Shoot."
"First off, what's this Operation Marketshare - 90 all about?" He took
off his glasses and pocketed them.
"Jack, remember the famous Hitachi directive that got loose a while
back, the one on how to market their 256K memory chips, ordering their
salesmen just to keep underpricing American manufacturers till they had
the sale, loss no object. According to Henderson, by the time the
International Trade Commission got around to convicting them of
dumping, they'd demolished America's domestic industry and nailed down
ninety percent of the market."
"Ninety, you say. Well, that's getting to be a familiar number." He
slumped back against the sofa. "Out of curiosity, what's included in
this MITI Marketshare - 90 operation?"
"Computers, of course. But also pretty much everything in high tech
where the U.S. still has a leading position--from biotech to aerospace.
These guys don't think small."
I gave Ben a pat, then pulled Mori's printout around, going on to
explain that we'd come across it in the drawer of her desk. It was, I
added, obviously some kind of special computer sorting of the firms DNI
was targeting. The categories in the sort were a breakdown of high-tech
areas, with individual firms listed underneath, together with a summary
of their research expenditures.
"Take a look. First, notice that this printout has been sorted and
converted into this list here." I placed it alongside the page I'd
found in the Xerox machine. "Voila, they're identical."
"So?"
"Okay, now compare that list with the R&D areas targeted in Ikeda's
memo." I laid Tarn's translation down next to Mori's pages. "See?
Everything on Ikeda's MITI wish list for research in semiconductors is
now being done by the American outfits named here in Mori's sorting,
which is the latest revision in DNI's acquisition program."
"What are you getting at?" He looked it over.
"It's a pattern." Tam spoke up. "These new buy-ups cover Japan's last
remaining shortfalls in R&D. I spotted it right away. But what I didn't
realize till we got these memos was that the areas covered by Mori's
companies exactly dovetail with MITI's goals. I probably wouldn't have
noticed it without her sorting. Mixed in with all the other companies
Noda's buying, he's targeted those that fill the gaps in MlTI's
semiconductor push."
Jack looked at us quizzically. "Are you telling me MITI's behind Noda's
program?"
That's where Tam and I parted company. She argued it was obviously a
MITI play: why start from scratch when you can just buy what you need?
Sound business investment. For some reason, though, I wasn't so sure.
Somehow that explanation seemed too simplistic. Unfortunately, however,
there's a law in science or somewhere that says you should always pick
the least-complicated theory that fits all your data. Hers appeared on
the face of it to address the facts perfectly. Except for one unknown:
if Mori did "accidentally" feed me the sorting that blew the whistle on
Noda's design, why?
"I think this has to be what the buying program on this list is all
about," Tam answered. "He's taking over firms whose R&D coincides with
MITI's targets. Matsuo Noda has been put to work simply acquiring what
they need, but to make sure nobody suspects the real agenda, he's
worked up this elaborate 'management assistance' story, buying all
kinds of companies." Her voice was bitter. "The next step will be to
set up joint ventures between these firms he's bought and their
counterparts in Japan. Then all American R&D would be shared."
"Which means"--Jack's face began to redden--"that since we always seem to
lose out when it comes to commercializing what we invent, the U.S. ends
up becoming one big think tank for Japan in the twenty-first century.
We do the research, and they manufacture and market. They pick our
brains and then cash in on it." He turned back to Tam. "Do you really
think it was Noda who planned all this?"
"I wish I knew what to think." Her voice grew hesitant as she continued
to stare down at the memo. "It's hard to believe Ken would do something
so unethical--especially a grab like this--when I'm sure he's convinced
Japan ought to be advancing its own R&D."
"Ken? Who's--"
"Did you see who authored that second memo?" She pointed to the name.
"Kenji Asano is apparently a close friend of Dr. Richardson's," I broke
in, my tone unnecessarily sharp. "Unfortunately, he seems to be an even
closer friend of his cronies at MITI."
Tam didn't respond, just sat there looking betrayed.
"Matt, let's be constructive here." Jack walked over and shook the
coffee pot, then sloshed the last dregs into his cup. "We damn well
ought to take some kind of action."
"That's why we wanted to talk to you." Tam came back to life. "Do you
think you could leak something about this? Maybe to the Times?"
"And say what?" He laughed, a little sadly. "That I've happened across
a set of secret MITI memos that bear a coincidental similarity to some
stolen DNI printout? Don't think that's exactly 'Fit to Print.'" He
frowned. "But I'm glad our Mr. Noda has finally let slip his true
intentions. I never believed all that pious malarkey about propping up
American industry." He snorted. "The man gets a few suckers like you to
help him destabilize our bond markets, in the process of which he turns
the high-tech sector of American industry into a bargain basement for
MITI."
Tam sipped her coffee, maybe trying to act as if Jack's comment hadn't
stung her the way I suspected it did. I decided to try and handle her
defense.
"Jack, hold on a second. You've got to admit that a lot of these
outfits Dai Nippon is buying are currently on pretty thin ice. If
somebody doesn't come in here and help run them right, they're probably
headed offshore anyway."
"We're not talking about first aid now, Walton. We're talking about
Matsuo Noda taking over the most strategic segment of our economy after
pulling the biggest scam in the history of world finance."
"That looks to be the story." I watched his cheeks redden with
frustration. "So what do you propose we do? There's no law against
foreign investment. Securities exist to be bought."
"Well, dammit, Matt, we've both seen enough by now to realize this Noda
genius is up to no good. We've got to stop him."
"Couldn't agree more. So why don't you just arrange to have the SEC
shut down trading in every stock DNI has in its gunsights."
"You know that's out of the question."
"Exactly. So what legal remedies are there? How do you squelch a
takeover program that's not even against the law?"
"That's your specialty, counselor, or so I hear."
"Jack, be realistic. We can expose this thing, maybe even try and lean
on Tokyo to back off, but aside from shutting down trading there's no
legal way to actually stop Matsuo Noda from buying whatever he likes.
You can't shut Japanese investors out of Wall Street. There'd be a riot
downtown. We're talking about the open market here, not some inside
deal."
"Forget legalities." He scowled. "Tell me how your damned corporate
raiders go about shenanigans that don't quite match the letter of the
law."
"Jack, I've officially quit the business. Retired. Guess you hadn't
heard."
"That's what you think. You just got un-retired. As of this moment. Now
give me one of those high-priced consultations you're so famous for."
"For you, Jack." I looked him over. "One last play. Trouble is, there's
not much that's do-able, at least on short notice."
"You say 'not much.' Which means there's something."
"Well, one possibility might be to try and slow him down
some, make him think twice, say, by punching up the prices of the
stocks he's aiming at. Make them less of a bargain."
"That's a start."
"Not much of one."
"Well, how could it be done?"
"Since you're such a Boy Scout, Jack, you probably won't like what I
have in mind. This one's not exactly in the rule book."
"Try me."
"Okay, it's a long shot, and we'll definitely need some help. If we're
going to tinker with the market, then we have to have somebody Wall
Street trusts. And also somebody who's got a lot of money to play with,
short term."
"Sounds like our mutual friend from Georgia."
"Well, Henderson can play the Street like a symphony. What I'm thinking
of involves tricking the smartest guys around, the 'risk arbs.' We'd
need to suck them in. If anybody can do it, he's the man."
"Then I say let's give him a buzz."
"Fine. Why don't I get him on the squawk box so we can all listen in."
There beside the couch was an old conference phone some client once
gave me as a Hanukkah gift. At long last it might be good for
something.
The risk arbs, by the way, are the risk arbitrageurs, those speculators
who live with one ear to the ground. The minute they hear word, inside
or otherwise, that a company is "in play," meaning it's a candidate for
a possible takeover or merger, they immediately grab up and stockpile
huge blocks of its publicly traded shares. Then they sit back and pray
for a bidding war. Since company A has offered so much a share for
company Z, maybe company B will step in and offer more. Or maybe
company Z itself will outbid them both and offer even more in a stock
buyback. They're the hyenas of the hunt, getting plenty of leftovers no
matter who ends up buying Z. Besides, they don't really care anyway.
They're not investing in American industry, they're laying side bets.
Tam and Jack settled back while I punched in Bill's number.
The doctor was in, and after a few profane formalities-- tempered when
we informed him of a female presence--he listened with uncharacteristic
attentiveness. I gave him an
update, concluding with the view that we ought to try heading off
MITI's presumed play.
Henderson, despite his admiration for Noda's style, didn't take kindly
to the possible buy-up of America's remaining R&D in semiconductors, a
specter that coincided all too closely to his own fable about how MITI
had already eaten one segment, memory chips. I decided to start by
seeing if he and I were on the same wavelength concerning
countermeasures. Without tipping him to my own idea, I asked what he
thought could be done.
"Tell you, it won't be easy. One thing, though, we could maybe try and
scare 'em off with a little brushfire."
"Try that in English, Bill," Jack interrupted.
"Don't know, maybe a few hot rumors could hit the Street . . . mergers,
takeovers, your usual quick-buck action. Say a few of the CEOs of these
outfits on Noda's Christmas list had a little powwow, a 'secret'
meeting everybody manages to hear about, and supposedly talked about
gettin' themselves bought out. Naturally they'd deny everything on the
Evening News, which in itself will tell the Street we're talkin'
wedding bells."
"Is that really going to do us any good?" Tam was talking to the box.
"Afternoon, ma'am. Liked that last book of yours a whole lot. Hope
you're keeping them boys sober." I could almost see Henderson turn up
the charm, sculpting a voluptuous, horny divorcee in his ardent
imagination. Tam, to my surprise, was not totally immune to his Georgia
sweet talk. She sort of smiled to herself as he continued, "But to
answer your question, a takeover rumor can do marvels for your stock
price. What happens is the 'arbs' come in, snapping up blocks of stock
and holding them, just in case. It can take a lot of securities out of
circulation, at least short term. So if we could get the arbs to
chasing those companies on Noda's list, they'd give the Japs a little
competition. At the very least it'd kite the market, hurt their
pocketbook."
"Bill, that's why we wanted to call you. How about putting your
finances where your flag-waving is? Be an arb yourself for a few weeks.
Lead the herd. Start picking up some blocks of stock and shooting off
your mouth a lot about your 'inside' information. I'll even kick in my
modest retirement fund to help the action."
"What if somebody pulls the rug out from under us? Shoots the whole
thing down? We'd be left holding all that stock we'd bid up. We could
lose our shirt."
"Then protect the downside by buying puts. I have full faith you'll
think of something. Come on, Henderson, be a market maker. You've got
the credibility. All you have to do is set a spark to this, then we'll
quietly head for the sidelines to make way for all those investment-
house yuppies who love to shoot craps with their clients' money."
"Have to be a quick in and out for damned sure. This hot-air balloon
won't stay up for long." He paused, clearly not wild about the idea.
"Tell you what, though, maybe if we had a real good story."
"Ideas?"
"Well, how about this? Maybe we've just heard on the grapevine that
those outfits on Noda's play list have started a little 'white knight'
talking. And since this is just speculation, we might as well think
big. Know who I mean?"
"The pride of Armonk."
"Give that man a gold star. We both know IBM headquarters ain't talked
to nobody but God since Watson outgrew his short pants, so it'd be
weeks before they'd stomp on some horse-pucky rumor about how they were
looking into saving whatever's left of the chip business here. Just
covering their ass, we'll say. Friendly mergers. No poison pill stuff."
"That's exactly the kind of specious 'supporting detail' that always
triggers the Street's greed." I concurred. "Offhand I'd say that sounds
just about perfect for tomorrow's hot tip on the Exchange floor."
In truth it did seem like a workable first draft of an idea. No law
against deep background sources that turn out to be 24-carat bullshit
down the road. The antitrust implications would be front page for a
couple of days, but since the administration adhered to the 'see no
evil' school of regulation, that angle wouldn't impress the smart
money. America starts thinking big, chucks the myth of garage
entrepreneurs, and staves off Japan using a dose of MITI's own
medicine. IBM rides in to rescue what's left of Silicon Valley. It
might just make Matsuo Noda back away. He'd learn America could play
hardball too.
We told Bill to take the rest of the day off. Jack was, I can report,
noticeably encouraged. Tam also. For my own part I just crashed, with a
few wistful reflections on my rocky
non-seduction. But if we pulled off our little scam, she might be more
inclined to take me seriously.
As Shakespeare said, Lord, what fools these mortals be. I realized the
true extent of Matsuo Noda's reach on Monday, just after noon. I was
still home when Tam called from the office uptown to inform me of the
latest developments. I was so busy on the phone just then, planting
merger rumors with a few friendly columnists, that I was almost annoyed
to take time out for her call. However, she quickly captured my
attention.
First, the revisions on DNI's acquisition program were in full swing.
Noda had started purchasing those healthy semiconductor outfits on the
new list.
Then she went on to say that an additional set of buy orders had just
gone out over the wire. Noda had been on his satellite hookup to Tokyo
all morning, and he'd now finalized official authorization for a minor
expansion, so to speak, in DNI's program. Apparently Tokyo had agreed
with him that his portfolio should include a certain high-grade issue
to achieve better overall "balance."
She didn't say much more, for obvious reasons, but we both had a strong
hunch what must have happened. If anything was bugged, for chrissake,
it wasn't my apartment. That's B-movie stuff. It had to be my phone.
Matsuo Noda had just kicked off a new buy program to the tune of three
and a half billion. For what? More high-tech stragglers? Not precisely.
One company, and in an amount intended to stay safely just below the
Securities and Exchange Commission's Form 13-D mandatory reporting.
Twenty-five million shares of IBM, roughly a full four percent of Big
Blue.
It was a massive variation of the "Pac-Man" takeover defense: you eat
anybody you think wants to eat you. Noda's message to us was loud and
clear: he could buy the USA anytime he wanted. Dai Nippon was
unstoppable.