JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
governance rights, such as board nomination or veto rights, in the annual securities report or extraordinary securities report. 6.9 Voting by Proxy In certain circumstances, shareholders can vote by proxy. See 6.10 Squeeze-Out Mechanisms . 6.10 Squeeze-Out Mechanisms In a tender offer for 100% of a listed company, the remaining shareholders who did not ten - der their shares in a successful tender offer will generally be squeezed out through a second- step squeeze-out mechanism. In practice, if an acquirer owns 90% of the voting rights of a target company after the first-step tender offer (thereby becoming a special controlling shareholder), the acquirer will usually complete the second step by exercising a statutory right to force the other shareholders to sell their shares to the spe - cial controlling shareholder (the “Squeeze-Out Right” ). Upon exercising the Squeeze-Out Right, dis - senting shareholders will have the right to exer - cise appraisal rights. In addition, if the exercise of the Squeeze-Out Right would violate law or the company’s articles of incorporation, or the consideration is grossly improper, the dissenting shareholders will have a right to seek an injunc - tion. In cases where the acquirer is unable to achieve the 90% threshold in the first-step tender offer, it may still implement the second-step squeeze- out through other means, typically the so-called share cancellation scheme (by way of use of a stock combination), to the extent that the acquir - er holds two thirds of the voting rights of the tar - get company (ie, the threshold to pass a special resolution at the target company’s shareholders’ meeting). In the share cancellation scheme, a
target company will implement a stock combina - tion in which the ratio of the stock combination is set so that the shares held by each minority shareholder will become less than one full share of the target company. The share cancellation scheme normally takes a few months, as the process requires the target company to convene a shareholders’ meeting and to complete certain court permission pro - cedures for the sale of fractional interests held by minority shareholders. 6.11 Irrevocable Commitments If there is a principal shareholder of a target company, it is relatively common for an acquirer to obtain an irrevocable commitment from the principal shareholder to tender its shares in the target company in the contemplated tender offer. The commitment will be made in a written agree - ment (oubo keiyaku), which is negotiated prior to the announcement of the transaction by the parties. Where such a commitment exists, mate - rial terms of the commitment are disclosed in the tender offer registration statement. Whether this type of commitment agreement includes a clause that would permit the princi - pal shareholder to refuse to tender in the event that a competing bid is made by a third party at an offer price higher than the tender offer price varies, depending on the type of principal shareholder (eg, a founder, senior management, a private company, a listed company) and other factors. This is a matter of negotiation and may be incorporated in the commitment, particularly if the deal did not involve an auction process or proactive market check and the principal share - holder is interested only in the financial aspects of the transaction.
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