JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
Guidelines emphasise the role of special com - mittees and provide detailed guidelines includ - ing the composition of the special committees. The Fair M&A Guidelines explicitly state that outside directors who owe fiduciary duties to the company are the most suitable persons to serve as members of the special committees. In practice, outside directors as members of spe - cial committees have been seen more frequently. While the involvement of special committees in negotiations of transaction terms was limited in the past, the Fair M&A Guidelines state that it is desirable that special committees should be actively involved in negotiations on transac - tion terms, either directly or indirectly, through expressing their views to the project team mem - bers who are in charge of the negotiations rath - er than simply reviewing the transaction terms when they are agreed. As such, special com - mittees are expected to play a more active role in negotiations. In line with recent practices, the Takeover Guide - lines reiterated the value of special committees. While the guidelines suggest that the usefulness of special committees depends on the circum - stances of each case, including the degree of management conflicts and the independence of the board, the Takeover Guidelines generally recommend establishing a special committee in going-private transactions, dealing with unsolic - ited offers or in cases in which the target com - pany needs to consider multiple public acquisi - tion proposals. The Tokyo Stock Exchange is considering reforms of its code of conduct applicable to management buyouts and going-private tran - sition by controlling shareholders. While the reforms have not yet been finalised, it is expect - ed that an opinion from a special committee
would become mandatory, and the substance of the opinion would have to include fairness of the transaction. More detailed disclosure regarding the basis of the opinion would also be required. The reforms would also require more compre - hensive disclosure of the basis of valuation on which the target company formed its opinion. 8.3 Business Judgement Rule As noted, in M&A transactions without any con - flicts of interest, the business judgement rule generally applies to directors’ decisions. There - fore, as long as directors of an acquirer make reasonable, informed business decisions based on sufficient information, including obtaining advice of experts and information obtained through due diligence, the courts would normally defer to the judgement of the board of directors. The Supreme Court in 2010 held in the Apaman Shop Holding case that the business judgement rule applies to the directors of an acquirer that conducted a share exchange with a private com - pany. 8.4 Independent Outside Advice It is common for directors of a company in an M&A transaction to obtain financial, tax and legal advice from outside experts. Obtaining a valua - tion report from an independent outside financial adviser is recognised as a prerequisite to ensur - ing fairness and transparency. In practice, a valuation report is obtained by a target company in almost all tender offers and by both parties in many statutory business com - binations such as mergers. In some cases, in addition to the valuation report, directors obtain a fairness opinion from an outside financial adviser, but this is not a prerequisite.
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