JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
As to the pre-warning type of defensive meas - ures (see 9.3 Common Defensive Measures ) that have been approved at a shareholders’ meeting before a tender offer is commenced, the court upheld the implementation thereof (ie, the allotment of stock options) by resolution of the board of directors (without a shareholder resolu - tion) where the acquirer did not comply with the procedures set out in the defensive measures (Nippo case in 2021). 9.3 Common Defensive Measures The most common takeover defensive measures (takeover response policies) adopted by Japa - nese listed companies before a hostile acquirer emerges are the pre-warning type of defensive measures. A company sets and publicly disclos - es (warns) a procedure with which a would-be acquirer has to comply before starting an acqui - sition. Under the procedure, the acquirer has to provide the board of directors with information regarding the acquirer and its acquisition plan, and ensure the directors have time to consider the plan and prepare alternatives, and for share - holders to consider which plan is in sharehold - ers’ interests. If the company determines, based on a recom - mendation of an independent committee estab - lished by the board, that the bidder has not com - plied with the procedures set by the company, or that the proposed acquisition would cause clear harm to the corporate value and common inter - ests of shareholders, it would allot stock options as countermeasures to all shareholders without contribution that are only exercisable by, or call - able for new shares by the company with respect to, those shareholders other than the acquirer, resulting in a dilution of the shareholding ratio of the acquirer. In most cases, it is provided that the board of directors may also confirm sharehold -
ers’ intentions concerning an allotment of such options by convening a shareholders’ meeting. However, the number of companies adopting these types of measures has been decreas - ing due to opposition by institutional investors. While 567 listed companies had adopted the measures as of 2009, they were adopted by 250 listed companies as of 2024. There have also been cases where, after a specific acquirer appears, takeover defensive measures are adopted by listed companies in response to a particular acquirer. In those cases, similar types of takeover defensive measures are generally used. 9.4 Directors’ Duties As discussed in 8. Duties of Directors , direc - tors have a duty of care as a good manager and a duty of loyalty to a company, and the busi - ness judgement rule is generally available for directors’ decisions in Japan. Laws and court precedents do not clearly provide that an inter - mediate or heightened level of review apply to directors’ decisions where they implement defensive measures. 9.5 Directors’ Ability to “Just Say No” While there is no case law in Japan address - ing the “Just Say No” defence, there is no rule per se that prohibits directors from simply refus - ing to negotiate and rejecting outright a hostile takeover attempt. However, the directors are required to make such decision in compliance with their fiduciary duties, and they are also under pressure from shareholders, including shareholder activists and institutional investors. In this regard, as discussed in 9.1 Hostile Tender Offers , the Takeover Guidelines provide a code of conduct for directors and boards of directors of target companies when they receive acquisi -
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