JAPAN Trends and Developments Contributed by: Haseru Roku, Nagashima Ohno & Tsunematsu
short-term market pressures and pursuing long-term structural reforms away from public scrutiny; in Japan’s recent M&A market, PE funds are often actively pursuing opportu- nities to acquire and privatise such listed companies. Historically, Japanese tech firms – often char- acterised by high growth and significant R&D spending – have been less likely targets for activist investors. However, in recent years cer- tain companies have revealed issues around asset structures and capital efficiency, prompt- ing both activists and private equity funds to view them as undervalued opportunities. For instance, some Japanese IT companies, due to a corporate culture of owning real estate such as office buildings, post relatively low returns on equity (ROE) compared with peers and may be accused by activist investors of “straying from their core business”, prompting demands to dis- pose of real estate assets and refocus on core operations. Indeed, media reports suggest that the privatisation of Fuji Soft was largely driven by a protracted argument over capital efficiency between activist investors with a major holding It is worth noting that, in some respects, the Japanese government is supportive of activist investors, PE funds and the surge in M&A trans- actions they have triggered. The TSE has long been criticised for its perceived lack of dyna- mism, insufficient appeal to foreign investors, and the fact that over half of its listed compa- nies trade at a price-to-book ratio (PBR) below 1, which may suggest that a firm’s operations are valued lower than its net assets, implying that liquidating the company and distributing the proceeds to shareholders could, in theory, offer in the firm and its management. Endorsement from the Japanese government?
higher returns. If activist investors can highlight these inefficiencies and prompt management to rectify them, it could invigorate both Japan’s stock market and the broader economy. In 2023, Japan’s Ministry of Economy, Trade and Industry (METI) issued its “Guidelines for Corporate Takeover”, stressing that the board of directors, shall give “sincere consideration” to a “bona fide offer” for an acquisition proposal submitted to it. The guidelines call for provid- ing shareholders with adequate information and ensuring transparency in the acquisition pro- cess. Consequently, when a listed company fac- es a potential acquisition, there is a greater need for directors to provide objective explanations along with a persuasive plan to ensure the best possible outcome for shareholders, including activist investors, rather than relying on general statements such as “considering the company’s long-term interests” to justify their decisions. This move has given activist investors, PE funds or other acquirers seeking to privatise a target firm a sense that the Japanese government is effectively endorsing them – enabling them to present their proposals more forthrightly. As a result, certain listed companies have accelerat- ed their exit from public markets through tender offers and restructured both their operations and shareholdings. Revisions to tender offer regulations All the aforementioned transactions involve acquisitions of listed companies, necessitat- ing tender offers. In May 2024, Japan signifi- cantly revised its Financial Instruments and Exchange Act, introducing major changes to the tender offer system which are set to take effect within two years from May 2025, although the exact implementation date has not yet been announced.
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