JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
8.5 Conflicts of Interest In appraisal proceedings to determine the fair value of shares of the target company, the courts generally respect the transaction terms, including the valuation agreed upon by the parties if the transaction is an arm’s length transaction between unaffiliated parties, and if procedures that are generally considered fair have been taken, such that the shareholders have approved the transaction after full disclosure of all material relevant information. However, if the trans - action involves conflicts of interest of directors or controlling shareholders, the courts will also consider whether adequate measures have been taken to elimi- nate arbitrary decisions and the effect of conflicts of interest. In a case involving a breach of fiduciary duty claim with respect to a management buyout, the Tokyo High Court held in 2013 that the directors must perform their fiduciary duties to ensure that fair value is trans - ferred among the shareholders, and that there is dis - closure of adequate information to ensure informed decision-making by the shareholders in determining whether to tender their shares in a tender offer. Views are divided as to whether the holding in this case imposes a stricter standard of review or merely clari - fies the duties of directors in management buyouts. It is also not clear if it applies only to management buy - outs, or if it extends to transactions involving conflicts of interest or to any transactions in which disputes can arise regarding transfer of value among share - holders. In any event, the courts normally closely look into whether adequate measures to eliminate arbitrary decisions and the effect of conflicts of interest have been taken in transactions that involve conflicts of interest of directors or controlling shareholders.
generally recommend establishing a special commit - tee in going-private transactions, dealing with unso - licited offers or in cases in which the target company needs to consider multiple public acquisition propos - als. In August 2025, the Tokyo Stock Exchange reformed its code of conduct applicable to management buy - outs and going-private transactions by controlling shareholders or affiliated shareholders. Under the amended code of conduct, a listed company must obtain an opinion from a special committee for any such transaction, and the opinion itself must be attached to the public disclosure regarding the trans - action. The reforms also require more comprehensive disclosure of the basis of valuation on which the target company formed its opinion. 8.3 Business Judgement Rule As noted in 8.1 Principal Directors’ Duties , in M&A transactions without any conflicts of interest, the busi - ness judgement rule generally applies to directors’ decisions. Therefore, as long as directors of an acquir - er make reasonable, informed business decisions based on sufficient information, including obtaining advice of experts and information obtained through due diligence, the courts would normally defer to the judgement of the board of directors. The Supreme Court in 2010 held in the Apaman Shop Holding case that the business judgement rule applies to the direc - tors of an acquirer that conducted a share exchange with a private company. 8.4 Independent Outside Advice It is common for directors of a company in an M&A transaction to obtain financial, tax and legal advice from outside experts. Obtaining a valuation report from an independent outside financial adviser is rec - ognised as a prerequisite to ensuring fairness and transparency. In practice, a valuation report is obtained by a target company in almost all tender offers and by both par - ties in many statutory business combinations such as mergers. In some cases, in addition to the valua - tion report, directors obtain a fairness opinion from an outside financial adviser, but this is not a prerequisite.
9. Defensive Measures 9.1 Hostile Tender Offers
Hostile tender offers have been permitted but histori - cally not common in Japan. However, there have been a number of hostile or unsolicited tender offers con - ducted by both strategic and financial buyers in the last five years. There has also been a recent increase in counter tender offers launched without consent of
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