JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
6.7 Types of Deal Security Measures In a tender offer, as explained in 5.5 Definitive Agree - ments , it is becoming more common particularly in large-sized deals for an acquirer and a target company to document a tender offer in a definitive transaction agreement. In recent high-profile deals, such as the respective going-private transactions of Toshiba and JSR Corporation, certain deal security measures, such as non-solicitation provisions, break-up fees or match rights, are agreed with the target company. It is also common for a buyer and principal share - holder of a target company to enter into an agreement where the shareholder agrees to tender its shares in the contemplated tender offer (see 6.11 Irrevocable Commitments ). The irrevocable commitments often include certain deal security measures such as non- solicitation provisions and match rights. Non-solici - tation provisions and force-the-vote provisions (or the like) are also often seen in a statutory business combination. 6.8 Additional Governance Rights If an acquirer does not seek 100% ownership of a target company, the acquirer may seek certain con - tractual protections, such as the right to designate members of a company’s board of directors, veto rights over certain material matters, and informa - tion rights to receive periodic financial information and business reports. However, if the target com - pany is a listed company, such protections may be quite limited because the target company will not be likely to accept such protections of the acquirer from a corporate governance standpoint. In addition, the amendments to the relevant ordinance of the FIEA in 2024 require the mandatory disclosure of certain governance rights, such as board nomination or veto rights, in the annual securities report or extraordinary securities report. 6.9 Voting by Proxy In certain circumstances, shareholders can vote by proxy. See 6.10 Squeeze-Out Mechanisms . 6.10 Squeeze-Out Mechanisms In a tender offer for 100% of a listed company, the remaining shareholders who did not tender their shares in a successful tender offer will generally be
squeezed out through a second-step squeeze-out mechanism. In practice, if an acquirer owns 90% of the voting rights of a target company after the first- step tender offer (thereby becoming a special control - ling shareholder), the acquirer will usually complete the second step by exercising a statutory right to force the other shareholders to sell their shares to the spe - cial controlling shareholder (the “Squeeze-Out Right”). Upon exercising the Squeeze-Out Right, dissenting shareholders will have the right to exercise appraisal rights. In addition, if the exercise of the Squeeze-Out Right would violate law or the company’s articles of incorporation, or the consideration is grossly improp - er, the dissenting shareholders will have a right to seek an injunction. In cases where the acquirer is unable to achieve the 90% threshold in the first-step tender offer, it may still implement the second-step squeeze-out through other means, typically the so-called share cancellation scheme (by way of use of a stock combination), to the extent that the acquirer holds two thirds of the voting rights of the target company (ie, the threshold to pass a special resolution at the target company’s share - holders’ meeting). In the share cancellation scheme, a target company will implement a stock combination in which the ratio of the stock combination is set so that the shares held by each minority shareholder will become less than one full share of the target company. The share cancellation scheme normally takes a few months, as the process requires the target company to convene a shareholders’ meeting and to complete certain court permission procedures for the sale of fractional interests held by minority shareholders. 6.11 Irrevocable Commitments If there is a principal shareholder of a target company, it is relatively common for an acquirer to obtain an irrevocable commitment from the principal sharehold - er to tender its shares in the target company in the contemplated tender offer. The commitment will be made in a written agreement ( oubo keiyaku ), which is negotiated prior to the announcement of the transac - tion by the parties. Where such a commitment exists, material terms of the commitment are disclosed in the tender offer registration statement.
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