JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
Recently, there has been an increasing number of demands by activists for M&A transactions, including a sale of the company itself. Refer - ring to the Takeover Guidelines, activists often demand that companies sincerely consider a third party’s takeover proposal, and the activ - ists sometimes even arrange takeover proposals from third parties, such as PE funds. As discussed in 11.3 Interference With Comple- tion , activists are engaging in so-called bumpi - trage with respect to M&A transactions. Activists also exercise their appraisal rights as dissenting shareholders with respect to M&A transactions and file a petition to the court for a determination of the fair price for the relevant shares after the completion of the transaction. 11.3 Interference With Completion The amount of bumpitrage has recently increased in Japan. After an announcement of a tender offer or business integration such as a merger or share exchange (especially a transaction where
PBR calculated using the purchase price is lower than 1.0), activists occasionally acquire shares in the target company and advocate, through a press release or other media, that the purchase price is lower than fair value and/or indicate the possibility of a counter tender offer. It should be noted that it is not easy under Japanese law for activists to obtain injunctive relief from a court prior to the completion of a transaction. If the market price of target company shares hovers at a level higher than the offer price as a result of the involvement of shareholder activists, uncertainty as to the completion of a transaction may increase, and an acquirer may be required to pay more than it had planned to consum - mate the transaction and, in the worst case, the transaction may fail. There has recently been an increase in tender offers that failed because the market price was continuously higher than the tender offer price until the end of the tender offer period.
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