JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
6.3 Consideration While cash is more commonly used as consid - eration in acquisitions, the type of consideration varies depending on the nature and structure of the acquisition. Earn-outs can be used to bridge value gaps between the parties and an increase in the number of private deals using earn-outs, particularly acquisitions of start-up companies, has been seen in practice. In a share purchase or business transfer, the consideration has been predominantly cash- only. However, the use of stock consideration is possible under the “share exchange” or the “share delivery” mechanism (see 2.1 Acquiring a Company ). The “share delivery” mechanism was introduced by the amended Companies Act in 2021 whereby a Japanese stock company can acquire all or a part of the shares of a target company (which must also be a Japanese stock company) by delivering the acquiring company’s shares to shareholders of the target company to make the target company its subsidiary. An amendment to the “share delivery” mechanism is under discussion at the Ministry of Justice in order to expand the scope of its availability, for instance, to the acquisition of a non-Japanese company. An exchange offer through which the acquirer offers its own securities as consideration in a ten - der offer is also legally permitted and, although no such deal has been announced to date, an exchange offer may be used in public deals that employ the “share delivery” mechanism. In a statutory business combination, such as a merger, share exchange or company split, stock is more commonly used as consideration, although cash or another consideration is legally permitted and it is often seen in the case of a company split.
for example, if an acquirer obtains 30% of the voting shares through off-market trading, it can - not then purchase additional shares during the next three-month period at market, off-market (including a tender offer) or otherwise that would result in its shareholding ratio exceeding one third. However, the Rapid Buy-Up Rule will be abol - ished under the 2024 FIEA Amendments mostly because the primary aim of the Rapid Buy-Up Rule to capture a combination of on-market and off-market trading will be achieved by the addi - tion of the on-market trading to the mandatory offer requirement as explained above. Although the Rapid Buy-Up Rule will be abolished under the 2024 FIEA Amendments, careful considera - tion should be given to a series of transactions that would result in a shareholding ratio exceed - ing 30% under the New 30% Rule, taking into account the facts and circumstances such as the commonality of the purpose and temporal proximity of those transactions. Counter Tender Offer Rule Under the Current One-Third Rule, a mandatory tender offer is required if, during the period in which there is an ongoing tender offer by a third party, an acquirer with an existing sharehold - ing ratio of more than one third purchases more than a 5% additional shareholding. The Counter Tender Offer Rule effectively captures on-market trading, because off-market trading resulting in a total shareholding ratio exceeding one third will be subject to the Current One-Third Rule in any event. However, the Counter Tender Offer Rule will be abolished under the 2024 FIEA Amendments because on-market trading will be subject to the mandatory offer requirement under the 2024 FIEA Amendments as explained above.
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