JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
Auctions An auction will normally be structured as a two-phase process. In phase one, the seller will usually require the potential buyers to submit a non-binding offer letter typically addressing, among other things, the indicative offer price, proposed deal structure, possi - ble conditions that the buyer may seek and necessary regulatory approvals. In phase two, a few selected buyers will be given access to the data room for due diligence and will be required to submit their binding bid, together with a mark-up of the draft transaction agreement circulat - ed by the seller. After binding bids are submitted, the seller will seek to negotiate and finalise the transac - tion agreement quickly so that the signing can occur as soon as practically possible. After the signing, the parties will seek any applicable regulatory approvals or clearances for the transaction, such as antitrust clearance and any required prior notification under the FEFTA (see 2. Overview of Regulatory Field ). Acquisitions In an acquisition involving a tender offer, the tender offer period must be set between 20 and 60 busi - ness days. If the acquisition is effected through a two- step process, where the tender offer is followed by a second-step squeeze-out of the remaining minority shareholders who did not participate in the tender offer, the process of the second step will depend on the level of shareholding that the acquirer owns after the first-step tender offer. If an acquirer owns 90% of the voting rights of a target company, the acquirer can complete the second step rather quickly (typically around one month) by exer - cising the Squeeze-Out Right (see 6.10 Squeeze-Out Mechanisms ). Where the acquirer is unable to achieve the 90% threshold in the first-step tender offer, the second step will usually take a few months. In those cases, the second step will require the target company to convene a shareholders’ meeting and to complete the court permission procedures (see 6.10 Squeeze- Out Mechanisms ). 6.2 Mandatory Offer Threshold Upon the implementation of the 2024 FIEA Amend - ments effective as of 1 May 2026 (see 3.2 Significant
Changes to Takeover Law ), the primary threshold for a mandatory tender offer will be 30% of the voting rights of a target company (the “New 30% Rule”). In addition to aligning with the same threshold in many other jurisdictions, the 2024 FIEA Amendments intro - duced a 30% threshold because a 30% voting position would in many cases be sufficient to block a special resolution of the shareholders for certain important actions (ie, merger, amendment to the articles, dis - solution), which requires approval by two thirds of the voting rights present at the relevant shareholders’ meeting, and it could also have a significant impact on ordinary resolutions requiring a simple majority of the votes cast. Under the 2024 FIEA Amendments, subject to cer - tain limited exceptions, an acquisition of outstanding securities of a listed company must be made by a tender offer if the “total shareholding ratio” ( kabuke - ntou shoyu wariai ) of the acquirer exceeds 30% after the acquisition. Prior to the 2024 FIEA Amendments, on-market acquisitions were generally not subject to the mandatory tender offer rules. However, on-market trading has now been added to ensure transparency and fairness of dealings in securities that have a signif - icant impact on the control of listed companies, given that there have been recent cases where the control of a listed company has been materially impacted by bidders acquiring a large volume of the listed com - pany’s shares through on-market trading in a short timeframe. The total shareholding ratio is defined in detail in the FIEA and the calculation generally includes the aggregate voting rights of the target company held by the acquirer and certain special affiliated parties ( tokubetsu kankeisha ) of the acquirer (on an as exer - cised and as converted to common stock basis). It should be noted that under the 2024 FIFA Amend - ments, the number of voting rights of any shares to be newly issued by the target company to the acquirer by agreement with the target company will be included in the calculation of the total shareholding ratio. This means that a combination of on-market or off-market trading and pre-agreed new share issuances, which would result in an acquirer holding more than the 30% total shareholding ratio, would require a mandatory tender offer even if the 30% threshold is not exceeded
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