JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
(see 2.1 Acquiring a Company ). The “share delivery” mechanism was introduced by the amended Com - panies Act in 2021 whereby a Japanese stock com - pany can acquire all or a part of the shares of a target company (which must also be a Japanese stock com - pany) by delivering the acquiring company’s shares to shareholders of the target company to make the target company its subsidiary. An amendment to the “share delivery” mechanism is under discussion at the Ministry of Justice in order to expand the scope of its availability, for instance, to the acquisition of a non- Japanese company. An exchange offer through which the acquirer offers its own securities as consideration in a tender offer is also legally permitted and, although no such deal has been announced to date, an exchange offer may be used in public deals that employ the “share delivery” mechanism. In a statutory business combination, such as a merg - er, share exchange or company split, stock is more commonly used as consideration, although cash or another consideration is legally permitted and it is often seen in the case of a company split. Cash and Stock A mix of cash and stock is not common in Japan. However, the share delivery mechanism mentioned above allows a mix of cash and stock, and also allows the deferral of taxation for the selling shareholders if at least 80% of total consideration is comprised of stock of the acquiring company, with no more than a 20% cash component. Separately, a cash tender offer followed by a second- step stock-for-stock merger or share exchange is often seen, and this structure also effectively provides the shareholders with the choice of cash or stock. 6.4 Common Conditions for a Takeover Offer The FIEA strictly regulates tender offer conditions and permits the withdrawal of a tender offer only upon the occurrence of certain narrowly defined events (although the 2024 FIEA Amendments relaxed the limitations to permit additional withdrawals of a ten - der offer, such as upon the approval of the regula - tors). The permissible withdrawal events must also
as a result of on-market or off-market trading – eg, the mandatory tender offer requirement will be triggered if an acquirer that has an agreement with the target company to subscribe for 2% of the target’s new - ly issued shares acquires 29% of the voting shares through on-market or off-market trading. In addition to the New 30% Rule, a mandatory ten - der offer is required if the total shareholding ratio of an acquirer exceeds 5% as a result of an off-market purchase. An exception applies to this 5% rule if the acquirer has not purchased shares in off-market trad - ing from more than ten sellers in aggregate during the 60 days before the day of the purchase on which the threshold is crossed (ie, during a 61-day period includ - ing the date of the threshold-crossing purchase). The 2024 FIEA Amendments eliminated a few situ - ations where a mandatory tender offer was previ - ously required – ie, the so-called rapid buy-up rule and counter tender offer rule – because the purpose of those prior rules is now generally captured by the addition of on-market trading to the mandatory offer requirement under the 2024 FIEA Amendments. However, even under the New 30% Rule, it should be noted that careful consideration should be given to any series of transactions that would result in a share - holding ratio exceeding 30% because the regulators have indicated that there could be cases where multi - ple transactions would be viewed as a single transac - tion, taking into account the facts and circumstances such as the commonality of the purpose and temporal proximity of those transactions. 6.3 Consideration While cash is more commonly used as considera - tion in acquisitions, the type of consideration varies depending on the nature and structure of the acqui - sition. Earn-outs can be used to bridge value gaps between the parties and an increase in the number of private deals using earn-outs, particularly acquisitions of start-up companies, has been seen in practice. In a share purchase or business transfer, the consid - eration has been predominantly cash-only. However, the use of stock consideration is possible under the “share exchange” or the “share delivery” mechanism
684 CHAMBERS.COM
Powered by FlippingBook