JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
ited takeovers should rely on the rational intent of shareholders. 9.2 Directors’ Use of Defensive Measures Defensive Measures Implemented by Directors Only Where there is a contest for control of a com - pany, defensive measures by way of issuing stock options to a particular third party or allot - ting poison pill type stock options to all share - holders that dilute an acquiring shareholder are generally not permitted to be implemented with - out shareholder approval if the primary purpose is maintaining or ensuring incumbent manage - ment’s control of a company, unless the defen - sive measures are justified in the context of pro - tecting the interests of shareholders as a whole (Nippon Broadcasting case in 2005; Japan Asia Group case in 2021). Defensive Measures Implemented Upon Resolution of Shareholders In a case involving defensive measures imple - mented by resolution of the target’s shareholders in accordance with the target’s articles of incor - poration, the Supreme Court held that it was permissible under the equitable doctrine for the target to allot stock options to all shareholders that are only exercisable by shareholders other than the hostile acquirer, and that are callable by the target for new shares for all shareholders other than the hostile acquirer, as long as such allotment is necessary and reasonable to protect the common interests of shareholders from the probable damages to be caused by the bidder (Bull-Dog Sauce case in 2007).
implemented by the board of directors that was subject to subsequent approval of shareholders (ie, the defensive measures would be cancelled if voted down at the shareholders’ meeting) (Fuji Kosan case in 2021). In this case, the defensive measures were implemented to enable share - holders to determine whether the takeover would harm corporate value and the common interests of shareholders of the target company. In a case involving a takeover attempt through the accumulation of shares in on-market trans - actions, the court upheld poison pill type defen - sive measures involving an allotment of stock options implemented by the board of directors and later approved at a shareholders’ meeting by a majority of shareholders present at the share - holders’ meeting excluding the acquirer and the directors of the target company and their related parties (a “majority of minority” resolution). In this case, the court held that in consideration of the coerciveness of a takeover through on-market transactions, the “majority of minority” reso- lution should be sufficient to see whether the company’s shareholders approve the defensive measures to be implemented (Tokyo Kikai Sei - sakusho case in 2021). On the other hand, there was a case where the court granted a provisional injunction against poison pill type defensive measures involving an allotment of stock options, even though imple - mentation thereof was approved at a sharehold - ers’ meeting. The court determined that they were not reasonable as measures to protect the common interests of the shareholders, given the board’s arbitral broad determination of the scope of “acquirers” and unreasonable condi - tions for the acquirers to withdraw their takeover attempts to avoid the potential dilution (Mitsub - oshi case in 2022).
Defensive Measures Implemented by Directors With Shareholder Approval
The court has upheld poison pill type defensive measures involving an allotment of stock options
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