JAPAN Law and Practice Contributed by: Yohsuke Higashi, Nobuhiko Suzuki and Hiroko Kasama, Mori Hamada & Matsumoto
However, as discussed in 2.1 Impact of Legal Devel- opments on Funds and Transactions (‘Stock-for- stock acquisitions’), there have been some legal and tax changes to facilitate stock-for-stock acquisitions by Japanese companies, and an exchange offer may finally come into play following such changes. There are no minimum price rules applicable to tender offers in Japan. 7.5 Conditions in Takeovers Offer conditions are strictly regulated, with the FIEA setting out the limited list of permitted conditions, including the occurrence of: • a decision by the target to effect a merger, reduc - tion of stated capital, issuance of new shares and other specified material corporate actions; • the revocation of government authorisations held by the target, natural disaster and other specified material events relating to the target; • the failure to obtain regulatory approvals; and • the dissolution and bankruptcy of the acquirer. Financing cannot be an offer condition, and the offeror must submit equity and debt commitment letters to the regulator as evidence of financing, which will be publicly disclosed together with the registration state - ment. In order to secure successful completion of the tender offer, an offeror enters into an agreement with the prin - cipal shareholders frequently, and sometimes with the target, pursuant to which the offeror agrees to launch the tender offer in accordance with the agreed terms; in exchange, the target agrees to support – or the prin - cipal shareholders agree to tender their shares to – the tender offer so long as it is conducted in accordance with the agreed terms. In each case, the existence and contents of such agreement must be publicly dis - closed in the registration statement. The target board would often negotiate a fiduciary-out clause in such agreement, and the offeror would negotiate a break fee in response. 7.6 Acquiring Less Than 100% If an offeror wishes to acquire only a certain percent - age of the shares of a listed company, it can gener -
ally set a cap for the acquisition in its tender offer. However, if the offeror will obtain two-thirds or more of the total voting rights as a result of the tender offer, it cannot set any cap on its offer and must make an offer to purchase all the tendered shares. If an offeror obtains 90% or more of the total vot - ing rights of a listed company, it can squeeze out the minority shareholders by exercising a statutory call option available under the Companies Act. This requires approval from the board of the target (which can be controlled by the 90% shareholder), but not from the shareholders. Dissenting shareholders can exercise appraisal rights and can seek an injunction in limited circumstances (eg, when the exercise of the call option is in breach of law or when the call price is grossly improper). If an offeror does not obtain 90% of the total vot - ing rights but secures two-thirds, it can still squeeze out the minority shareholders by alternative methods available under the Companies Act (all of which would require a two-thirds super-majority approval of share - holders). Such alternatives include a short-form cash merger, but a reverse stock split ( kabushiki heigou ) is the option predominantly used. The reverse stock split would be structured so that, following its comple - tion, shareholders of the target other than the offeror would hold only fractional shares and would be sub - sequently cashed out. Dissenting shareholders can exercise appraisal rights and seek an injunction if the reverse stock split is completed in breach of the law or the articles of incorporation of the target, and the shareholders could be adversely affected. Due to corporate governance concerns, it would be difficult for the target to grant a shareholder addition - al governance rights that are disproportionate to its shareholding. As such, it is typically not possible to obtain only a minority position or a limited number of shares of a listed company through a tender offer and concurrently negotiate additional governance rights. Similarly, debt push-down into the target company is not common in Japan due to concerns regarding minority shareholder protection.
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