JAPAN Law and Practice Contributed by: Akira Matsushita and Hideki Ben, Mori Hamada
11.7 Company Prevention and Response to Activist Shareholders The most important strategy for the management of a listed company when addressing shareholder activ- ism is to proactively review the company’s financial condition, capital efficiency and share price, as well as the composition of the company’s shareholders and their wishes or demands, before shareholder activists invest in the company. During this review, the com- pany’s management should endeavour to address or improve matters that may make the company suscep- tible to activist shareholder interests and manoeuvres. The company’s management should also engage in regular dialogues with its large shareholders (including institutional investors), to understand what they want the company to do and to build good relationships. When shareholder activists emerge, management should respond to the shareholder activists in a rea- sonable manner, keeping in mind the perspective of financial investors. Most importantly, management should seek to clarify or explain its position to gar- ner the support of the other shareholders (including institutional investors) for the management’s position. Although it has not been a common strategy in Japan, management can consider entering into a settlement agreement with shareholder activists to avoid a costly public campaign that may harm the company’s image or a potential unfavourable outcome of a sharehold- ers’ vote.
Management. As a result, three of five incumbent directors were dismissed and four of six designated directors were elected at the extraordinary sharehold- ers’ meeting. Furthermore, in response to activist demands, several companies have in recent years increased their divi- dends or conducted a buyback of their shares through the market or a tender offer. The number of shareholder activism cases relat- ing to M&A transactions has also increased. Activ- ist shareholders push to increase the purchase price through acquisition of large stakes (eg, 10% or more of outstanding shares) in target companies (to influ- ence the terms of the transactions) or by engaging in public campaigns after these transactions are pub- licly disclosed, especially in tender offers where PBR calculated using the purchase price is lower than 1.0. For example, J-STAR, a Japan-based private equity fund, launched a tender offer for Yaizu Suisankagaku Industry Co Ltd in August 2023; however, the tender offer failed as a result of the accumulation of shares in Yaizu by Murakami Group and 3D Investment after the announcement of the tender offer (each accumu- lated around 10% of the shares in Yaizu). After the failure, Yaizu conducted a wide-ranging auction to find a bidder. Yaizu engaged with Murakami Group and 3D Investment as well as a selected bidder, Inaba Foods Co Ltd, and finally succeeded in having them conduct a tender offer in March 2024 for Yaizu at a purchase price that was approximately 20% higher than the pur- chase price of the tender offer conducted by J-STAR.
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