(FORTUNE Magazine) – The wealth of Japanese corporations intrudes on the consciousness of American business executives through a steady stream of small transactions. A Japanese leasing company buys part of a big American commodities trading house. A Tokyo-based gas company swallows the U.S. corporation that created the thermos. A Japanese department store chain takes over a U.S. retailer. As the months pass, the details blur. Big bangs like Bridgestone's $2.6 billion acquisition of Firestone are rare. What fixes in the mind is an image of Japanese buyers nibbling at the American business world, reshaping and transforming it with their cash, just as they have reshaped it with their competitive prowess. As they did in manufacturing and marketing, the Japanese are now mastering the skills of the buyout game. After several years of awkward, nerdy attempts to court U.S. companies, Japanese buyers now move with finesse. In the past year Japanese buyers have begun to cut faster deals, lure American managements with lucrative contracts, spin off unwanted divisions, even walk away from deals they don't like. Far from being a source of concern, Japan's new dealmaking prowess should raise cheers from the ranks of American managers and shareholders. In the cold, amoral world of corporate takeovers, American and European buyers stalk their prey, load them with debt, fire managers, and then break the companies into pieces to earn their reward. The Japanese, by comparison, are a benevolent bunch. They don't play the buy-'em-and-bust-'em-up game; hostile takeovers are rare. They pay top dollar to shareholders, and they strive to retain the managers of the companies they buy. Last year Japanese buyers plowed more than $14 billion into the U.S. in the form of direct investment. Of that, some $12.7 billion was spent acquiring U.S. corporate assets, according to Ulmer Brothers, a New York investment bank that tracks Japanese deals. That amounts to only half the money Kohlberg Kravis Roberts spent in its acquisition of RJR Nabisco. For that money, however, Japanese buyers walked away with 75 U.S. companies. Says Paul Kelly, president of Peers & Co., an investment bank that helps the Japanese buy American: ''The Japanese are usually very targeted, very focused.'' Under the right conditions, however, Japanese buyers will open the wallet wide, especially if it means keeping a talented American management in place. Increasingly, the Japanese are learning that the loyalty of American managers bears a high correlation to compensation. Take the recent purchase of semiconductor manufacturer Silicon Systems by TDK Corp., a leading Japanese maker of magnetic tapes. To keep Carmelo J. Santoro, the company's chief executive, from heading into early retirement, TDK added $1 million a year to his salary for the next three years and installed multimillion-dollar bonus pools for top executives. Such cash bonuses are almost unheard of in Japan, but they are becoming increasingly popular with Japanese companies that buy overseas. THE EXECUTIVES of Shaklee Corp., a San Francisco-based maker of nutritional products, may have done even better. Yamanouchi Pharmaceutical approached Shaklee in March, when Shaklee was already under attack from corporate raider Irwin L. Jacobs. Yamanouchi offered itself as a white knight and agreed to give management a big equity stake in the business if its $392 million bid were approved. Says Shaklee Chief Executive David M. Chamberlain, now a happy Yamanouchi employee: ''We have a situation where we are working toward a big payout.'' The payoff will depend on Shaklee's performance in the years ahead: The compensation plan is based on a formula that Shaklee's management had drawn up when it was considering its own buyout of the firm. If managers fare well in Japanese takeovers, shareholders do even better. The Japanese don't quibble about prices as much as U.S. buyers, and they aren't bottom fishers. In the Shaklee transaction, for example, Jacobs was offering $20 a share to buy Shaklee; Yamanouchi paid $28. The willingness to ante up for desirable companies is largely attributable to Japanese managers' strategic perspective. They typically put far less emphasis on short-term financial analysis. What they want is a high-quality acquisition, a base on which to build in the U.S. Says R. Bradford Evans, who heads up mergers and acquisitions in the Far East for Morgan Stanley: ''Japanese buyers are more concerned with finding the right business. Then they will pay an appropriate amount.'' With Japanese stocks trading at 55 times earnings and U.S. shares selling at an average of 13 times earnings, their idea of appropriate may well exceed an American seller's fondest dreams. Despite the Japanese buyers' willingness to dig deep for the right acquisition, most continue to shy away from the ego-driven bidding wars that often develop between big U.S. buyers. This reflects a reluctance on the part of Japanese to buy large, diversified American firms that will have to be broken up. The Japanese buyers' preferred prey is more likely to be a small, digestible company that has a single line of business. Last year's purchases include a frozen burrito maker in Los Angeles, an apple juice plant in Seattle, several wineries, a soft drink bottling company, some paper mills, the manufacturer of Jergens hand lotion, two makers of industrial sewing machines, a cement company, a dozen luxury hotels, and a couple of specialty retail chains. ANOTHER REASON that Japanese buyers are pulling off an increasing number of successful takeovers is that they tend to limit their tender offers to companies they know well. Many of last year's acquisitions involved U.S. firms that had established marketing arrangements, joint ventures, research and development ties, or the like several years earlier. Once the Japanese are comfortable with the management of a U.S. company, they are much more likely to make a pass. But a bigger reason for their growing success is simply that Japanese investment bankers are coming of age. That owes partly to the hours that U.S. investment bankers have devoted to training Japanese dealmakers in attempts to lure Japanese money into their deals. But it also results from the cumulative experience from scores of Japanese acquisitions in the U.S. No one better typifies the new breed of Japanese dealmaker than Toshihiko Yamamoto, a general manager of investment banking at Sumitomo Bank. Last year Yamamoto's bank represented Japanese buyers in three of the ten largest U.S.-Japan deals. So far this year it has handled three of the five largest transactions. Yamamoto plays a direct role in most big deals. He was a key adviser to Yamanouchi when it bought Shaklee Corp., helping the buyer to review Shaklee's business operations and make a rapid-fire bid just five days after the start of negotiations, an almost unheard of speed for Japanese managers, who often mull over such decisions for weeks. Tokyo born and educated, Yamamoto spent ten years in London and four in New York for Sumitomo before returning to Tokyo to head its merger effort. Fluent in English and comfortable with the world of M&A, he instills an aggressive deal-driven spirit in Sumitomo's Japanese merger team. Sumitomo is also increasingly aggressive on its own behalf. Some American competitors complain that Sumitomo cuts its fees and uses its leverage as a lender to Japanese corporations to win M&A assignments. Sumitomo's response is that it is precisely because of those deep relationships with Japanese corporations and the profits it makes on lending that it can afford to charge smaller fees than American investment banks on deals. ONE SURE SIGN that the Japanese have grown more confident in the world of international M&A is their willingness to bring on American or European partners. The rationale is at least partly defensive. Stung by the incessant publicity that accompanies large Japanese acquisitions in the U.S., Japanese buyers are forever seeking a lower profile. Adding a non-Japanese partner reduces the static level. In June, Peers & Co., which is affiliated with the Long-Term Credit Bank, Japan's 12th-largest bank, helped Tobu Department Store Co., Japan's largest department store owner, team up with Charterhouse Group International, a British-backed LBO firm, to acquire Gump's, a mail-order and department store chain in San Francisco, for $36.5 million. Or consider last year's acquisition of Inter-Continental Hotels by the Saison Group of Tokyo. After the takeover the Saison Group turned around and sold a 40% share to SAS Airlines of Scandinavia, one of the competing bidders for Inter-Continental. Joint ownership of Inter-Continental now ties the Saison Group in with a major international airline and gives the Japanese hotelier the nucleus of a travel network akin to the one United Airlines tried to build with its acquisition of Westin Hotels and Hertz rental cars. For American managers, the only worry about Japan's growing role in acquisitions is that as Japan's worldliness increases, its managers will become inclined to shed those benevolent qualities that make Japanese companies such desirable bedfellows. Japanese scruples about buying companies and selling off unwanted divisions may be among the first taboos to go. No epidemic is likely, as buyers don't wish to be criticized for breaking up American firms and displacing workers. But Japanese buyers are looking more carefully at large companies with disposable parts. The largest bust-up deal completed so far is Nippon Mining Co.'s acquisition of Gould Inc. Nippon Mining wanted only Gould's copper foil business, a product used in electronic circuitboards. In order to get that, it was willing to buy the whole company and then sell off Gould's defense and computer divisions. Peter Rona, chief executive of IBJ Schroder Bank & Trust Co., the Japanese-owned investment bank that advised Nippon Mining on the deal, expects to see more such asset sales by Japanese firms. As Japan's experience in acquisitions grows, even those fancy prices may ^ come down a bit. Japanese buyers are highly sensitive to charges that they pay too much. In one deal last year a well-heeled Japanese buyer did the unthinkable by walking away from an acquisition that had gotten too pricey. The turnabout happened after Sir Ronald Brierley, a New Zealand investor, made an offer for Union Special, a manufacturer of industrial sewing machines based in Chicago. Juki Corp., Japan's largest sewing machine maker, offered to play the white knight to Union Special. But when Brierley discovered the Japanese had landed, he increased his bid. Juki decided Brierley was paying top dollar and, surprisingly, refused to up its bid, ceding Brierley the prize. Juki ultimately got Union Special a few weeks later when Brierley cashed in his holdings and sold the company for the same price he had paid. MORE WORRISOME is that the new breed of Japanese investment bankers will become increasingly inclined to launch hostile bids. Japanese corporations have attempted four such takeovers of U.S. companies in three years. Each has involved a sophisticated, Americanized attacker, and each met a public backlash that has chastened other Japanese firms. Only one hostile bid was successful, ending in the purchase of Reichold Chemical by Dainippon Ink & Chemicals in 1987. But more could come. In one surprise attack, AM International was the victim of a bid from Komori Printing Machinery Ltd. of Japan. The two companies had been considering a joint venture and their relationship seemed stable. But with little fanfare Komori began accumulating the American company's stock. Komori threatened a hostile acquisition, but eventually backed away, remaining a large, disgruntled shareholder. Another assault took place this spring when a group of investors including Tokyo stock speculator Tsunesaburo Kurosawa made an unwelcome bid on International Banknote. Kurosawa's group didn't win, but they drove International Banknote into the arms of its archrival, United States Banknote. Despite those disturbing exceptions, most Japanese buyers remain content for now to nibble at the American business world, to establish toeholds, to grow businesses, and to experiment cautiously out of public view. Hostile takeovers will not suddenly burgeon, nor will corporate breakups. Most disquieting are those Japanese behemoths on the horizon, the Toyotas, the Matsushitas, and their kin. Untapped in the slow accretion of wealth of the past few years, these players control massive war chests. It is that wealth, sitting on the sidelines, that draws the attention of the American mind. Eventually those companies will draw up that dry powder and take aim. When they do, the stately pace of Japanese corporate acquisitions could turn into a banzai charge.

CHART: NOT AVAILABLE CREDIT: SOURCE: DEPARTMENT OF COMMERCE CAPTION: Buying binge