JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
Act (FIEA) – a private equity buyer that is the tender offeror will be required to submit and publicly disclose equity commitment letters from its fund entities and debt commitment letters from its banks to show that it has secured sufficient funds to complete settlement. 6.2 Locked-Box Consideration Structures As discussed in 6.1 Types of Consideration Mech- anism , locked-box mechanisms, in the strict sense of the term, are rare in Japan. There are a number of transactions where the purchase price is agreed as a fixed amount and is not subject to any closing adjustment. However, in such transactions, there are no mechanisms for leakage indemnification or interest accrual on the purchase price; the protections for the buyer are typically the seller’s interim covenants to conduct the target’s business in the ordinary course and not to: • distribute dividends; • enter into transactions with the seller and its affili - ates; or • enter into other specified transactions. 6.3 Dispute Resolution for Consideration Structures It is quite typical to have a dispute resolution mecha - nism in place for completion accounts consideration structures. A typical dispute resolution mechanism would include: • a good faith discussion period between the parties to resolve any differences; and • determination by an independent third party (usu - ally an accounting firm) if the parties are unable to reach agreement. The selection of such third party is often agreed in the transaction agreement beforehand, or the parties can agree to each select an independent firm and use the
In most cases, private equity sellers emphasise deal certainty and will therefore resist any closing condi - tions that are not within the seller’s control, except for regulatory approvals, which are in most cases pro - vided as a closing condition. Non-controllable condi - tions include: • the buyer’s financing; • third-party consents; • the absence of material adverse changes; and • the retention of key personnel. It is generally difficult for a private equity buyer to include financing as a closing condition, especially in an auction process. Other closing conditions do not generally differ much from the conditions provided for in transactions by a corporate buyer. If the transaction involves a tender offer, conditions are kept to the minimum due to the rather stringent restrictions on withdrawing a tender offer, as further discussed in 7.5 Conditions in Takeovers . 6.5 “Hell or High Water” Undertakings “Hell or high water” undertakings are sometimes nego - tiated between the seller and the buyer, especially with respect to securing clearance under merger controls, but are still not very common in Japan, regardless of whether the transaction involves a private equity fund as a buyer or not. Sellers would usually mitigate clearance risk through a simpler covenant obliging the buyer to use its best or reasonable efforts to obtain the clearance. The EU Foreign Subsidies Regulation (FSR) has not become a major issue in transactions involving Japa - nese targets. 6.6 Break Fees Break fees payable by the seller are not common in private equity transactions without tender offers (see 7.5 Conditions in Takeovers for transactions that involve tender offers), nor are fiduciary-out provi - sions. Reverse break fees payable by the buyer are also not common, but are used in some transactions where the seller is particularly concerned about the deal certainty. While it depends on the specificities of the relevant transaction, a typical trigger for a reverse
average figure of both firms’ results. 6.4 Conditionality in Acquisition Documentation
Closing conditions are usually heavily negotiated between the seller and the buyer, and it is difficult to generalise what is “market” because the outcome will largely depend on the specifics of the transaction.
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