JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
9. Defensive Measures 9.1 Hostile Tender Offers
8.5 Conflicts of Interest In appraisal proceedings to determine the fair value of shares of the target company, the courts generally respect the transaction terms, includ - ing the valuation agreed upon by the parties if the transaction is an arm’s length transaction between unaffiliated parties, and if procedures that are generally considered fair have been tak - en, such that the shareholders have approved the transaction after full disclosure of all material relevant information. However, if the transaction involves conflicts of interest of directors or con - trolling shareholders, the courts will also consid - er whether adequate measures have been taken to eliminate arbitrary decisions and the effect of conflicts of interest. In a case involving a breach of fiduciary duty claim with respect to a management buyout, the Tokyo High Court held in 2013 that the directors must perform their fiduciary duties to ensure that fair value is transferred among the shareholders, and that there is disclosure of adequate informa - tion to ensure informed decision-making by the shareholders in determining whether to tender their shares in a tender offer. Views are divided as to whether the holding in this case imposes a stricter standard of review or merely clarifies the duties of directors in man - agement buyouts. It is also not clear if it applies only to management buyouts, or if it extends to transactions involving conflicts of interest or to any transactions in which disputes can arise regarding transfer of value among shareholders. In any event, the courts normally closely look into whether adequate measures to eliminate arbitrary decisions and the effect of conflicts of interest have been taken in transactions that involve conflicts of interest of directors or con - trolling shareholders.
Hostile tender offers have been permitted but historically not common in Japan. However, there have been a number of hostile or unso- licited tender offers conducted by both strate - gic and financial buyers in the last few years. There has also been a recent increase in counter tender offers launched without consent of a tar - get company after announcement of a friendly tender offer for the target company by another bidder. As discussed in 3.1 Significant Court Deci - sions or Legal Developments , the Takeover Guidelines issued on 31 August 2023 provide, among other things, a code of conduct for direc - tors and boards of directors of target companies when they receive acquisition proposals. Under the Guidelines, if the board of directors receives “bona fide offer” (an acquisition proposal that is specific, rational in purpose and feasible), the board should give “sincere consideration” to such proposal by considering the appropri - ateness of the acquisition from the perspec - tive of whether the acquisition will contribute to enhancing corporate value. When the board of directors or directors decide on a direction towards reaching agreement of an acquisition, they should make reasonable efforts to ensure that the acquisition will be based on terms that will secure the interests of shareholders, in addi - tion to determining whether the acquisition is appropriate from the perspective of enhancing the company’s corporate value. The Takeover Guidelines also discuss takeover response poli - cies and countermeasures. The Takeover Guide - lines are generally in line with the various court opinions as discussed in 9.2 Directors’ Use of Defensive Measures , and emphasise that the invocation of countermeasures against unsolic -
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