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CHAMBERS

Global Practice Guides

JAPAN

Corporate M&A

LAW & PRACTICE:

p.3

Contributed by

Contributed by Mori Hamada & Matsumoto

Mori Hamada & Matsumoto

e ‘Law & Practice’ sections provide easily accessible information on navigating the legal system when conducting business in the jurisdiction. Leading lawyers explain local law and practice at key transactional stages and for crucial aspects of doing business.

DOING BUSINESS IN JAPAN:

p.283

2017

Chambers & Partners employ a large team of full-time researchers (over 140) in their London office who interview thousands of clients each year. is section is based on these interviews. e advice in this section is based on the views of clients with in-depth international experience.

JAPAN

LAW & PRACTICE:

Contributed by Mori Hamada & Matsumoto

p.3

e ‘Law & Practice’ sections provide easily accessible information on navigating the legal system when conducting business in the jurisdiction. Leading lawyers explain local law and practice at key transactional stages and for crucial aspects of doing business.

Law & Practice JaPaN

Contributed by Mori Hamada & Matsumoto Authors: Hajime Tanahashi, Takayuki Kihira,
Kenichi Sekiguchi, Akira Matsushita

Law & Practice

Contributed by Mori Hamada & Matsumoto

cONteNtS

  • 1. Trends
  • p.5

p.5 p.5 p.5
6.6 Additional Governance Rights 6.7 Voting by Proxy 6.8 Squeeze-Out Mechanisms 6.9 Irrevocable Commitments p.12 p.12 p.12 p.12
1.1 M&A Market 1.2 Key Trends 1.3 Key Industries

2. Overview of Regulatory Field

2.1 Acquiring a Company

p.5

p.5 p.5 p.5 p.6 p.6

  • 7. Disclosure
  • p.13

p.13 p.13 p.13 p.13
7.1 Making a Bid Public 7.2 Types of Disclosure 7.3 Requirement for Financial Statements 7.4 Disclosure of the Transaction Documents
2.2 Primary Regulators 2.3 Restrictions on Foreign Investment 2.4 Antitrust Regulations 2.5 Labour Law Regulations

  • 8. Duties of Directors
  • p.14

p.14 p.14 p.14 p.14

  • 3. Recent Legal Developments
  • p.6

8.1 Principal Directors’ Duties 8.2 Special or Ad Hoc Committees 8.3 Business Judgement Rule 8.4 Independent Outside Advice
3.1 Significant Court Decisions or Legal
Developments
3.2 Significant Changes to Takeover Law p.6 p.7

  • 4. Stakebuilding
  • p.8

p.8 p.8 p.8 p.8 p.8

  • 9. Defensive Measures
  • p.14

p.14 p.15 p.15 p.15 p.15
4.1 Principal Stakebuilding Strategies 4.2 Material Shareholding Disclosure resholds 4.3 Hurdles to Stakebuilding 4.4 Dealings in Derivatives 4.5 Filing/Reporting Obligations
9.1 Hostile Tender Offers 9.2 Directors’ Use of Defensive Measures 9.3 Common Defensive Measures 9.4 Directors’ Duties 9.5 Directors’ Ability to “Just Say No”

  • 5. Negotiation Phase
  • p.8

p.8 p.9 p.9 p.9 p.9

  • 10. Litigation
  • p.15

p.15 p.16
5.1 Requirement to Disclose a Deal 5.2 Market Practice on Timing 5.3 Scope of Due Diligence 5.4 Standstills or Exclusivity 5.5 Definitive Agreements
10.1 Frequency of Litigation 10.2 Stage of Deal

  • 11. Activism
  • p.16

p.16 p.16 p.16
11.1 Shareholder Activism 11.2 Aims of Activists 11.3 Interference with Completion

  • 6. Structuring
  • p.9

p.9 p.10 p.11 p.11 p.11
6.1 Length of Process for Acquisition/Sale 6.2 Mandatory Offer reshold 6.3 Consideration 6.4 Common Conditions for a Takeover Offer 6.5 Minimum Acceptance Conditions

3

JaPaN Law & Practice

Contributed by Mori Hamada & Matsumoto Authors: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi, Akira Matsushita

Mori Hamada & Matsumoto’s corporate M&A team con- pany and private equity and venture capital transactions,

sists of approximately 40 partners and 80 associates. e friendly and hostile transactions, going-private transacmajority of the team is based at the main office in Tokyo, tions, MBOs, acquisition finance and takeover strategies. In although there are M&A team members at the domestic recent years, the firm has been particularly active in crossbranch offices in Osaka, Nagoya and Fukuoka, as well as border transactions between Japan and South and Southat the international branch offices in Singapore, Shanghai, East Asian countries. Beijing, Bangkok, Yangon and Jakarta. e firm has a full- e firm’s M&A lawyers oſten team up with lawyers with service M&A practice that handles mergers, acquisitions, expertise in other key practice areas in order to assist with restructurings and corporate alliances in a wide variety of M&A transactions involving distressed or insolvent compaindustries and sectors, including both domestic and cross- nies, as well as M&A-related litigation and arbitration. border transactions (inbound and outbound), listed com-

authors

Hajime tanahashi is a partner in the firm

and has great expertise in corporate,

Kenichi Sekiguchi is a partner and

practises in M&A, and general corporate

  • M&A, private equity, venture finance and
  • matters, including corporate litigations

  • corporate governance. Tanahashi has also
  • regarding M&A transactions. He focuses

  • represented various domestic and interna-
  • particularly on transactions involving

  • tional private equity funds. He is the
  • conflicts of interests such as management

author of several publications, including ‘Private Equity in Japan: Market and Regulatory Overview’ (co-authored), ‘Comprehensive Analysis of M&A Laws of Japan’ (cobuyouts. He was admitted to the Bar in Japan in 2005 and in New York in 2011. His contributions to legal publications include ‘Doing Business in Japan’ (co-authored), authored) and ‘Cross-Border M&A: Laws, Regulations and ‘Comprehensive Analysis of M&A Laws of Japan’ (co-

  • Practical Considerations’. Tanahashi is a lecturer at Kyoto
  • authored) and ‘Enterprise Law: Contracts, Markets, and

University School (2007-), and is a director and member of Laws in the US and Japan’ (co-authored). the Industrial Innovation Committee, Innovation Network Corporation of Japan (2009-). He was admitted to the Bar in Japan in 1992 and in New York in 1997.

akira Matsushita is a partner and has

expertise in cross-border/domestic M&A, corporate governance, takeover defence and general corporate and securities law matters. He has advised many listed companies that have been subject to

takayuki Kihira is a partner and has

experience of M&A, corporate and securities laws. In particular, he has extensive experience in cross-border M&A shareholder activism and a hostile takeover, including a transactions and frequently represents international clients. He was admitted to proxy fight. He was admitted to the Bar in Japan in 2006 and in New York in 2013. Matsushita has published ‘Comprehensive Analysis of M&A Laws of Japan’ (coauthored), ‘Reconsideration of Regulations for Proxy Solicitation (Volumes 1 and 2) - Based on Proxy Regulation in the US’ and ‘Shareholders’ Proposal and Proxy Fight’ (second edition). the Bar in Japan in 2001 and in New York in 2007. He has authored several publications, including ‘Comprehensive Analysis of M&A Laws of Japan’ (co-authored), ‘CrossBorder M&A: Laws, Regulations and Practical Considerations’ and ‘Corporations and Partnerships in Japan’.

4

Law & Practice JaPaN

Contributed by Mori Hamada & Matsumoto Authors: Hajime Tanahashi, Takayuki Kihira,
Kenichi Sekiguchi, Akira Matsushita

1. trends

vided in the FIEA (see a more detailed description of the

“One-ird Rule” and other rules in 6.2 Mandatory Offer reshold).

1.1 M&a Market

e M&A market in Japan continued to grow in 2015. e number of transactions increased by 6.3% from 2014, which A share acquisition may also be made by a “share exchange”, represents an increase for four consecutive years, and the one of the statutory business combinations, whereby an acvalue of transactions increased 68.3% from 2014. e reason quiring company can acquire 100% of the shares of a target for the significant increase in value is the increased value of company upon a two-thirds shareholder vote. A share acoutbound transactions (a 93.9% increase from 2014), includ- quisition may also be made through a subscription of shares ing Tokio Marine’s acquisition of HCC Insurance Holdings issued by a target company. Generally, a listed company can and Itochu’s investment in CITIC Limited. As for domestic issue shares by a board resolution unless (i) the issue price transactions, both the number and the value increased – by is a deep discount from the market price or (ii) aſter the is-

  • 6.7% and 47.1% respectively – during 2015.
  • suance, the total outstanding shares exceed the authorised

number of shares provided for in its articles of incorporation (see a discussion of certain new shareholders’ rights under

1.2 Key trends

Aſter the peak in the Japanese M&A market in 2006, both the amended Companies Act in 3 recent Legal Develop-

in transaction numbers and values, the market suffered a ments). Even if the board approves an issuance that results downward trend until 2011, but began to pick up in 2012. in an acquirer holding a majority of the shares of the target It appears that growth will continue, given the desire of company, the acquirer is not required to offer to purchase corporate management in many Japanese companies to in- shares from the minority shareholders. crease their domestic market share and seek opportunities

  • for growth outside the country.
  • A business (asset) acquisition is generally conducted through

either (i) a contractual buy-sell agreement or (ii) a statutory company split, which is a statutory spin-off procedure. ird

1.3 Key industries

In Japan, M&A activity is being seen in a wide range of party consents are required to effect a contractual business industries, including consumer goods, financial sectors, acquisition – for example, consents from counterparties chemical and electronics. Among the outbound transac- to transferred contracts and transferred employees are retions, Japanese insurance companies have been quite active quired. However, these consents are not statutorily required in acquiring overseas companies. In domestic transactions, in the case of a company split. Instead, the Companies Act the increase in mergers and integration among regional requires the parties to a company split to comply with vari-

  • banks is one notable trend.
  • ous procedures including the ones for creditor protection.

2.2 Primary regulators

2. Overview of regulatory Field

e Financial Services Agency (the “FSA”) administers securities regulations under the FIEA, including regulations

2.1 acquiring a company

A company is acquired in Japan either by (i) a share acquisi- involving tender offers, public offerings and proxy solicitation or (ii) a business (asset) acquisition. is can be accom- tions. plished through either (i) a contractual purchase of shares or business (assets) or (ii) a statutory business combination (or e Ministry of Finance, the Ministry of Economy, Trade corporate restructuring) conducted pursuant to the provi- and Industry and other relevant ministries regulate crosssions of the Companies Act (ie a merger, share exchange, border transactions under the Foreign Exchange and Forshare transfer or company split). A forward triangular busi- eign Trade Act (the “FEFTA”), including inward/outward ness combination (such as a merger whereby a merger sub- investments. sidiary of the acquirer merges with a target company whose shareholders receive the parent’s (acquirer’s) stock) is per- e Japan Fair Trade Commission (the “JFTC”) regulates

  • mitted under the Companies Act.
  • transactions that substantially restrain competition under

the Act on Prohibition of Private Monopolisation and Main-
A share acquisition from one or more third parties (other tenance of Fair Trade (the “Antimonopoly Act”). than the company) may be made through either an “onmarket” transaction or “off-market” transaction. While the e Tokyo Stock Exchange, Inc. (“TSE”) and other stock tender offer rules under the Financial Instruments and Ex- exchanges oversee transactions involving a listed company. change Act (the “FIEA”) do not generally apply to market

transactions, an off-market acquisition of shares of a listed 2.3 restrictions on Foreign investment

company is subject to the tender offer rules if an acquirer e FEFTA provides some restrictions on foreign investseeks to acquire shares in excess of certain thresholds pro- ment in certain restricted businesses.

5

JaPaN Law & Practice

Contributed by Mori Hamada & Matsumoto Authors: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi, Akira Matsushita

A foreign investor is required to file prior notification with to other means for the acquisition of a target company or its the Minister of Finance and the competent minister for the business, such as a merger, company split, share transfer and business and wait a specified period (which may be extended business/asset transfer. up to five months) if: (i) the foreign investor intends to ac-

quire shares of a private company (except an acquisition of 2.5 Labour Law regulations

shares of a private company from another foreign investor) e Japanese labour law regulations of primary concern to or more than 10% of the shares of a listed company; and an acquirer are restrictions on the ability of an employer (ii) the target company engages in certain restricted busi- to terminate employment agreements. An “at-will” employnesses identified in the FEFTA, including businesses regard- ment agreement is not legally permitted in Japan. Rather, ing national security, public order or public security. Aſter a dismissal can be found to be invalid if it lacks objectively the review, the ministers may order the foreign investor to reasonable grounds and is not considered to be appropriate change or discontinue the plan of investment. Although a in general societal terms (Article 16 of the Labour Contract wide variety of businesses are identified as a restricted busi- Act). erefore, an acquirer should be aware that it may be ness under the FEFTA, orders to change or discontinue an difficult to undertake typical layoffs aſter the consummation

  • investment have rarely been made.
  • of an acquisition.

Otherwise, there are post-acquisition notifications required in connection with acquisitions by a foreign investor. An

3. recent Legal Developments

outward investment by a resident in Japan may also be sub- 3.1 Significant court Decisions or Legal ject to a post-reporting obligation, a prior notification obli- Developments

gation or the approval of the Minister of Finance, depending e most significant legal development in Japan in the last

  • on the type of business of the investee.
  • three years relating to M&A is the development of the juris-

prudence concerning transactions which involve conflicts
In addition, there are some restrictions on the holding of of interest of a director or controlling shareholder. Notwithshares by a foreign investor in a company engaging in cer- standing a number of appraisal proceedings in which the tain types of businesses, such as airline and broadcasting court has addressed conflicts of interest issues in determin-

  • businesses.
  • ing the fair value of the shares of companies subject to ac-

quisition or disposition transactions, the recent case of Rex Holdings (“Rex”), for the first time in Japan, considered the

2.4 antitrust regulations

e Antimonopoly Act prohibits any acquisition that sub- duty of directors in a management buyout. stantially restrains competition in a particular field of trade, or which would be conducted by using unfair trade practices. e directors of Rex, together with a private equity fund, acquired 100% of Rex’s shares through a tender offer and a
Potential acquisitions that would exceed certain thresholds subsequent cash squeeze-out of the remaining shareholdrequire prior notification to the JFTC. In particular, if a com- ers, each conducted at JPY230,000 per share. Dissenting pany with domestic sales (aggregated with domestic sales of shareholders who were subject to the squeeze-out filed an its group companies) of more than JPY20 billion intends to appraisal suit. acquire shares in a target company with domestic sales (aggregated with domestic sales of its subsidiaries) of more than Although the Tokyo District Court ruled in favour of Rex, JPY5 billion, and that acquisition results in holding more the Tokyo High Court held that the fair value of the shares than either 20% or 50% of the voting rights in the target in the squeeze-out should be JPY336,696 per share. Aſter company, the acquiring company must file prior notifica- this decision was upheld by the Supreme Court, shareholdtion of the plan of acquisition with the JFTC at least 30 days ers who did not participate in the appraisal suit filed a lawprior to the closing of acquisition. If the JFTC determines suit against Rex’s directors and statutory auditors, claiming during this 30-day period (the first phase review) that more a breach of their duties of care, and demanded an amount extensive review is necessary, it proceeds to a second phase equivalent to the difference between the tender offer price review. e period of the second phase review is up to 120 (or squeeze-out price) (ie JPY230,000) and the fair price dedays from the prior notification or 90 days from the accept- termined by the Tokyo High Court in the appraisal suit (ie ance by the JFTC of all information which it requests the JPY336,696). One primary issue in the Rex case was whether acquiring company to provide, whichever is the later. If the the release of an amendment to the earnings forecast of the JFTC determines that an acquisition violates the Antimo- company that was released a few months prior to the launch nopoly Act, the JFTC may order the party to take measures of the tender offer and that adjusted such earnings forecast to eliminate the antitrust concerns, including a disposition downward was aimed at manipulating the market price of of shares and assets. Similar filing requirements and subse- the company to lower the tender offer price. quent procedures pursuant to the Antimonopoly Act apply

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  • Public Takeovers in Germany

    Public Takeovers in Germany

    White Paper Public Takeovers in Germany How to acquire a publicly listed company in Germany Authors Dr. Ulrike Binder Partner, Frankfurt +49 69 7941 1297 [email protected] Dr. Klaus W. Riehmer Partner, Frankfurt +49 69 7941 1020 [email protected] Public Takeovers in Germany For the successful acquisition of a publicly listed company in Germany, a bidder must carefully con- sider legal and strategic implications at each stage of the takeover process. This white paper explains the legal framework within which takeovers occur, and describes strategies for the effective implementation of a takeover bid. This Mayer Brown publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. 2 | MAYER BROWN Public Takeovers in Germany Throughout the EU, takeovers of publicly regulated market, and in Germany these listed companies are governed by the would include in particular the Prime and European Takeover Directive (2004/24/EC). General Standard of the Frankfurt Stock In Germany, the Takeover Act (Takeover Act, Exchange. In contrast, the Open Market or Wertpapiererwerbs­ und Übernahme­ (Freiverkehr) is not a regulated market and gesetz, WpÜG) implements the European offers for target companies traded on the Takeover Directive. It applies to public Open Market are neither governed by the offers for German target companies whose European Takeover Directive nor the shares are listed in Germany.
  • JARGON® Global Mergers & Acquisitions

    JARGON® Global Mergers & Acquisitions

    The BOOK of JARGON® Global Mergers & Acquisitions The Latham & Watkins Glossary of Global M&A Slang and Terminology First Edition Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. The Law Office of Salman M. Al-Sudairi is Latham & Watkins associated office in the Kingdom of Saudi Arabia. In Qatar, Latham & Watkins LLP is licensed by the Qatar Financial Centre Authority. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone: +1.212.906.1200. © Copyright 2013 Latham & Watkins. All Rights Reserved. Welcome to the Book of Jargon® – Global Mergers & Acquisitions. For readers who are lawyers, bankers, or studying to be one, this book can serve as an introduction to the legal and business terms — including corporate and private equity sponsor terminology — often encountered in the structuring, negotiation and execution of mergers, acquisitions and dispositions in many countries around the globe. From statutory terms and nomenclature to sometimes colorful slang, this book includes the words that comprise both home country law and the lingua franca of the M&A world — which has become truly global.
  • Recent CONSOB Rulings on Exemptions from the Obligation to Launch a Public Tender Offer

    Recent CONSOB Rulings on Exemptions from the Obligation to Launch a Public Tender Offer

    1 Recent CONSOB rulings on exemptions from the obligation to launch a public tender offer Public M&A Briefing June 2012 Recent CONSOB rulings on exemptions from the obligation to launch a public tender offer Over recent years, the legal framework applicable to public tender offers has undergone sweeping reforms. One of the matters most reformed, first by the legislator and then by CONSOB, is the exemption from the obligation to launch a public tender offer upon meeting certain conditions. In four separate rulings in just a few months, CONSOB has intervened to provide clarification on some application-related issues of significant interest for potential investors. The exemptions, in fact, are highly significant technical instruments in cases involving the "rescue of companies in financial distress". This briefing reviews the recent CONSOB notices regarding the "rescue" exemptions (but not only) and aims to analyse the least common denominator of CONSOB case precedents on exemptions to provide market operators with an overview of the application of the exemptions system in practice. Our contacts in Italy To discuss any of the issues in this publication or general Public M&A issues, please contact: Avv. Paolo Sersale Avv. Sabrina Borocci Avv. Valentina Russo Partner, Corporate M&A Counsel, Corporate M&A Responsabile K&I – Corporate M&A [email protected] [email protected] [email protected] Avv. Claudio Cerabolini Avv. Alberta Figari Avv. Umberto Penco Salvi Partner, M&A/Private Equity Partner, M&A/ECM Partner, M&A/Energy and infrastructure [email protected] [email protected] [email protected] 2 Recent CONSOB rulings on exemptions from the obligation to launch a public tender offer Introduction: the exemptions, scope of application, primary and secondary legislation Article 106(5) and (6) of Legislative Decree no.