JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
6.11 Commonly Litigated Provisions Breaches of representations and warranties, such as inaccurate financial statements, are often negotiated and disputed between the seller and the buyer follow - ing the closing. However, the parties tend to resolve such disputes outside court. For a going-private transaction, it is not uncommon to see appraisal rights litigation initiated by dissenting shareholders that have been squeezed out. Going-private transactions have been common in the Japanese M&A market, and there have been an increasing number of management buyouts in the 2020s. Recent going-private transactions sponsored by pri - vate equity funds include: • the acquisition of Toshiba by a consortium led by Japan Industrial Partners in 2023; • the acquisition of JSR Corporation by Japan Investment Corporation in 2024; • the acquisition of FUJISOFT Inc. by KKR in 2024; • the acquisition of Makino Milling Machine Co., Ltd. by MBK Partners announced in 2025; and • the acquisition of Fujitec Co., Ltd. by EQT announced in 2025. 7. Takeovers 7.1 Public-to-Private In going-private transactions, the target company must, after the commencement of the tender offer, file a document stating its position (for, against or neutral) on the tender offer under the FIEA, and also make a public announcement regarding its position in accord - ance with the stock exchange’s rules and regulations. The target company’s directors must reach a decision on the company’s position in accordance with their duties of care and loyalty. While permissible, it is not very common for the bidder and the target company to enter into an agreement regarding the tender offer. If such agreement is executed, it usually contains provisions obliging the target company to express its affirmative opinion regarding the tender offer. In such a case, the bidder and the target company would like -
The management team of the target seldom provides separate representations and warranties to a buyer, unless the management team itself is a seller in the transaction. 6.10 Other Protections in Acquisition Documentation While private equity sellers accept indemnification to a certain extent, a seller would negotiate to limit its exposure as much as possible, as explained in 6.8 Allocation of Risk and 6.9 Warranty and Indemni- ty Protection . There are cases where private equity funds agree to set up an indemnity escrow as the buyer’s sole recourse, although such practice is still relatively rare. While warranty and indemnity (W&I) insurance has been used by Japanese companies in cross-border M&A, historically, it had not been widely used in domestic M&A, partly because there was no insur - ance company capable of providing the insurance based on a Japanese language due diligence report and transaction documents. However, an increasing number of Japanese auc - tion sellers, including private equity sellers, are now requesting bidders to rely on W&I insurance in place of their recourses against the sellers. Furthermore, insurance companies have recently started to active - ly provide W&I insurance in Japan based on Japa - nese language documents. There has also been an increasing opportunity for providers of this insurance in connection with the increasing number of small to mid-cap M&A conducted for the purpose of “business succession”. As a result, W&I insurance is becoming more and more common even in domestic M&A, and there have been many auction processes where the bidders are required to give up any recourse against the seller and instead rely on the representations and warran - ties insurance. W&I insurance policies purchased for Japanese tar - gets usually provide coverage for both fundamental and business representations and warranties.
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