JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
be specifically provided in the tender offer registration statement, and include: • a decision by a target company to make a mate - rial change, such as a merger, reduction of capital, stock split and issuance of new shares; • the occurrence of a material event with respect to the target company, such as damage due to a natural disaster; • the failure to obtain regulatory approvals; and • the occurrence of a material event with respect to an acquirer, such as dissolution and bankruptcy. A material change that would permit withdrawal must fit within one of the narrowly defined withdrawal events; a broad material adverse change (MAC) or material adverse effect (MAE) condition is not permit - ted. A financing condition is also not permitted and an acquirer must prepare, as part of the tender offer registration statement, a document evidencing pre- arranged financing on a firmly committed basis. If the pre-arranged financing is subject to conditions, the substance of these conditions is generally required to be described in the statement. 6.5 Minimum Acceptance Conditions A minimum acceptance condition is permitted for a tender offer. Where a minimum acceptance condition is specified in the tender offer registration statement, an acquirer will not purchase any shares if the num - ber of shares tendered is lower than that specified minimum number. If a minimum acceptance condi - tion is set at the commencement of the tender offer, that minimum threshold may not be increased by the acquirer, but the acquirer may decrease or remove the condition. 100% Ownership In a 100% acquisition deal, the minimum acceptance condition is traditionally set such that the voting rights held by an acquirer after the tender offer will reach two thirds of a target company’s voting rights on a fully diluted basis. The ownership of two thirds of the voting rights of the target company will ensure that the acquirer will be able to pass a special resolution of the shareholders at a shareholders’ meeting (eg, merger, amendment to the articles, dissolution). The acquirer will then proceed to the second step of the acquisition
to squeeze out any remaining shareholders who did not tender their shares in the tender offer (see 6.10 Squeeze-Out Mechanisms ). More recently, minimum acceptance conditions are sometimes set below the two-thirds threshold to increase the likelihood of a successful tender offer. One of the reasons for this trend is that passive index funds that hold the target shares normally do not ten - der shares in a tender offer, but do vote in favour of the second step squeeze-out (where a shareholder resolution is required). Partial Ownership If an acquirer does not seek 100% ownership of a target company, the minimum acceptance condition is typically set such that the voting rights held by the acquirer after the tender offer will be a majority of the voting rights of the target company on a fully diluted basis. The majority ownership will allow the acquirer to pass an ordinary resolution of the shareholders at a shareholders’ meeting. The primary purpose of a deal of this type is typically to allow the shares of the target company to continue to be listed on a stock exchange. In addition, the acquirer may also set a maximum number of shares to be purchased by the acquir - er, provided that the total shareholding ratio of the acquirer after the tender offer will remain less than two thirds. If the number of shares tendered exceeds that maximum number, the acquirer must purchase the tendered shares on a pro rata basis. If, for instance, a bidder sets both a minimum and maximum at the level of a simple majority, a majority acquisition can be achieved without purchasing all shares tendered. 6.6 Requirement to Obtain Financing In a statutory business combination, there are no spe - cific limitations on conditions. However, in practice, the conditions in a business combination among listed companies are typically quite limited, such as neces - sary shareholder approval and regulatory approvals and clearances. A financing condition is not com - monly used in a business combination because, as explained in 6.3 Consideration , stock is more com - monly used.
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