JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
Revisions to the Listing Rules Regarding Management Buyouts (MBOs) and Subsidiary Conversions In response to continued concerns of investors about the effectiveness of special committees and limited disclosure on assumptions adopted in valuation, the Tokyo Stock Exchange determined to supplement and enhance the requirements under the Fair M&A Guide - lines and revise the listing rules concerning MBOs and taking-private transactions by a controlling sharehold - er. The revised listing rules (a) expanded the scope of covered transactions to include taking-private trans - actions by certain related companies that are not con - trolling shareholders, (b) require the target’s board to form a special committee consisting mainly of outside directors and obtain its opinion confirming that the relevant MBO or taking-private transaction is fair for general shareholders, and (c) require the target to dis - close the entire opinion of the special committee. The amendments took effect on 22 July 2025. Foreign Investment Regulations Expanded scope of foreign investment review In 2020, there was a major amendment to the Foreign Exchange and Foreign Trade Act (FEFTA), which regu - lates foreign direct investments in Japan, among other things. While Japan has long required foreign inves - tors to make a prior notification and undergo screen - ing prior to investing in designated business sectors, the amendment expanded the scope of transactions covered. As a result of the amendment, the threshold for the prior notification requirement for the acquisition of shares of listed companies engaged in designated business sectors was lowered from 10% to 1%, while any acquisitions of shares of non-listed companies engaged in designated business sectors continue to be reportable regardless of the percentage of shares acquired (ie, the acquisition of even one share is reportable). To strike a balance, the amended FEFTA concur - rently introduced exemptions from the prior notifica - tion requirement, which may be available for passive investors who are not related to any foreign govern - ments, if they comply with certain exemption condi - tions to ensure that they remain passive investors.
impact on appraisal rights litigation brought by share - holders who dissent to squeeze-outs. Furthermore, in response to the increase in hostile or unsolicited offers and the court rulings on defence measures, on 31 August 2023 METI published new guidelines titled ‘Guidelines for Corporate Takeovers’ with respect to the principles and best practices of directors’ conduct in the context of acquisition of cor - porate control of a listed company, which, among oth - ers, recommend that a phase-based approach be tak - en by the board against a proposal for acquisition of corporate control, and that an individual director, upon receipt of an acquisition proposal, promptly report it to the board and the board give “sincere consideration” to any “bona fide offer”. When the board decides to negotiate towards agreement, the Guidelines request that the directors negotiate diligently with the acquirer to improve the offered terms so that the acquisition is conducted on the best available terms for the share - holders. The Guidelines have had a material impact on the attitude of boards as they can no longer ignore an offer solely because it is unsolicited. Expected Change in Mandatory Tender Offer Rules and Large Shareholding Reporting Requirement The Diet approved the amendments to the manda - tory tender offer rules and large shareholding report - ing requirement in May 2024. Once the amendments come into effect, a tender offer requirement will be applicable to any market trades (while currently, mar - ket trades (on-floor transactions) are exempt from the requirement), and the threshold of the mandatory ten - der offer will be lowered to 30% from the current one- third threshold by taking into account the actual ratios of voting rights exercised at Japan’s listed companies. The amendments to the large shareholding reporting requirement include clarifications on which cases are exempted from the shareholders’ agreement on joint exercise of voting rights and other shareholders’ rights and thus the relevant shareholders are deemed joint holders. Further, the amendments will clarify the necessary factors to explain in a large shareholding report, such as the purpose of holding and material agreements. These amendments will come into effect on 1 May 2026.
307 CHAMBERS.COM
Powered by FlippingBook