JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
ly negotiate fiduciary-out provisions and break fees, whereby such an agreement must also be disclosed in the tender offer registration statement. 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers The FIEA imposes a reporting requirement on hold - ers of more than 5% of the shares of a listed Japa - nese company. In calculating the shareholding ratio, the number of shares held by certain affiliated parties and other shareholders that have made an agreement (with respect to decisions on the acquisition or dis - position of the shares or the exercise of the voting rights) will be aggregated. See 2.1 Impact of Legal Developments on Funds and Transactions (‘Expect - ed Change in Mandatory Tender Offer Rules and Large Shareholding Reporting Requirement’) for recent amendments. The reporting must be made to the rel - evant local finance bureau ( zaimu-kyoku ) within five business days of the 5% threshold being exceeded. Following the initial reporting, the shareholder must file an amendment whenever there is an increase or decrease in its shareholding ratio by 1% or more, or a change to the name, address or other material infor - mation in the previous reporting. When commencing a tender offer, the offeror is required to file a tender offer registration statement with the relevant local finance bureau, which sets forth, inter alia, the offer terms, identity of the offeror, reason for the offer, plan on squeeze-out, and meas - ures taken to avoid any conflict of interest. 7.3 Mandatory Offer Thresholds The FIEA sets forth mandatory tender offer require - ments that apply to the acquisition of shares of list - ed companies (and non-listed reporting companies, which are rare). The rules are fairly complex, but the most important of the various requirements is a so- called one-third rule, which requires a buyer intending to acquire shares of a listed company to conduct a tender offer if it intends to purchase shares off-market and would acquire more than one-third of the total voting rights of the listed company as a result of such purchase. It should be noted that the one-third threshold is tested against the voting rights after the acquisition,
and even an acquisition by a buyer not holding any voting right before the acquisition could be subject to the requirement. While the requirement will not gen - erally apply to an on-market purchase of shares, it will apply to off-floor trading, which does not provide general market participants with an opportunity to be a party to the trading. The voting rights will be calcu - lated in accordance with the detailed rules set forth in the FIEA, which include aggregation of the voting rights held by certain affiliated parties and other share - holders that have made an agreement (with respect to decisions on the acquisition or disposition of the shares or the exercise of the voting rights). Such affili - ated parties and other shareholders that have made an agreement could include affiliated or related funds or portfolio companies of private equity-backed bid - ders. The amendment to the mandatory tender offer rules will come into effect on 1 May 2026, following which a tender offer requirement will be applicable to any on-market trading (while currently on-market auc - tion trading is exempt from the requirement) and the threshold of the mandatory tender offer will be low - ered to 30% from the current one-third threshold (see 2.1 Impact of Legal Developments on Funds and Transactions (‘Expected Change in Mandatory Ten - der Offer Rules and Large Shareholding Reporting Requirement’)). 7.4 Consideration In almost all tender offers for Japanese targets, con - sideration has been cash only. Stock or mixed consid - eration has not been used, mainly because Japanese tax law did not grant a tax deferral on capital gains upon the sale of stock for stock or mixed considera - tion, which led dispersed shareholders of a listed com - pany to face an immediate need for cash to pay taxes, and because the acquirer was subject to prohibitively burdensome requirements under the Companies Act, including an investigation by a court-appointed inspector into the value of the target’s shares prior to the issuance of the acquirer’s shares, and an obliga - tion for the acquirer to indemnify the target’s share - holders if it later turns out that the value of the target’s shares they received was significantly less than the value on which the issuance of the acquirer’s shares was based.
316 CHAMBERS.COM
Powered by FlippingBook