JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
Defensive Measures Implemented Upon Resolution of Shareholders
a target company after announcement of a friendly tender offer for the target company by another bidder. As discussed in 3.1 Significant Court Decisions or Legal Developments , the Takeover Guidelines issued on 31 August 2023 provide, among other things, a code of conduct for directors and boards of direc - tors of target companies when they receive acquisi - tion proposals. Under the Guidelines, if the board of directors receives a “bona fide offer” (an acquisition proposal that is specific, rational in purpose and fea - sible), the board should give “sincere consideration” to such proposal by considering the appropriateness of the acquisition from the perspective of whether the acquisition will contribute to enhancing corpo - rate value. When the board of directors or directors decide on a direction towards reaching agreement of an acquisition, they should make reasonable efforts to ensure that the acquisition will be based on terms that will secure the interests of shareholders, in addition to determining whether the acquisition is appropri - ate from the perspective of enhancing the company’s corporate value. The Takeover Guidelines also discuss takeover response policies and countermeasures. The Takeover Guidelines are generally in line with the vari - ous court opinions as discussed in 9.2 Directors’ Use of Defensive Measures , and emphasise that the invo - cation of countermeasures against unsolicited takeo - vers should rely on the rational intent of shareholders. 9.2 Directors’ Use of Defensive Measures Defensive Measures Implemented by Directors Only Where there is a contest for control of a company, defensive measures by way of issuing stock options to a particular third party or allotting poison pill type stock options to all shareholders that dilute an acquiring shareholder are generally not permitted to be imple - mented without shareholder approval if the primary purpose is maintaining or ensuring incumbent man - agement’s control of a company, unless the defensive measures are justified in the context of protecting the interests of shareholders as a whole ( Nippon Broad - casting case in 2005; Japan Asia Group case in 2021).
In a case involving defensive measures implemented by resolution of the target’s shareholders in accord - ance with the target’s articles of incorporation, the Supreme Court held that it was permissible under the equitable doctrine for the target to allot stock options to all shareholders that are only exercisable by share - holders other than the hostile acquirer, and that are callable by the target for new shares for all sharehold - ers other than the hostile acquirer, as long as such allotment is necessary and reasonable to protect the common interests of shareholders from the probable damages to be caused by the bidder ( Bull-Dog Sauce case in 2007). Defensive Measures Implemented by Directors With Shareholder Approval The court has upheld poison pill type defensive meas - ures involving an allotment of stock options imple - mented by the board of directors that was subject to subsequent approval of shareholders (ie, the defen - sive measures would be cancelled if voted down at the shareholders’ meeting) ( Fuji Kosan case in 2021). In this case, the defensive measures were implement - ed to enable shareholders to determine whether the takeover would harm corporate value and the com - mon interests of shareholders of the target company. In a case involving a takeover attempt through the accumulation of shares in on-market transactions, the court upheld poison pill type defensive measures involving an allotment of stock options implement - ed by the board of directors and later approved at a shareholders’ meeting by a majority of shareholders present at the shareholders’ meeting excluding the acquirer and the directors of the target company and their related parties (a “majority of minority” resolu - tion). In this case, the court held that in consideration of the coerciveness of a takeover through on-market transactions, the “majority of minority” resolution should be sufficient to see whether the company’s shareholders approve the defensive measures to be implemented ( Tokyo Kikai Seisakusho case in 2021). In 2025, the Tokyo District Court upheld another poi - son pill type defensive measure implemented by the board of directors that was subject to subsequent
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