JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
Cash and Stock A mix of cash and stock is not common in Japan. However, the share delivery mechanism men - tioned above allows a mix of cash and stock, and also allows the deferral of taxation for the selling shareholders if at least 80% of total con - sideration is comprised of stock of the acquir - ing company, with no more than a 20% cash component. Separately, a cash tender offer followed by a second-step stock-for-stock merger or share exchange is often seen, and this structure also effectively provides the shareholders with the choice of cash or stock. 6.4 Common Conditions for a Takeover Offer The FIEA strictly regulates tender offer condi - tions and permits the withdrawal of a tender offer only upon the occurrence of certain nar - rowly defined events. Those withdrawal events must also be specifically provided in the tender offer registration statement, and include: • a decision by a target company to make a material change, such as a merger, reduction of capital, stock split and issuance of new shares; • the occurrence of a material event with respect to the target company, such as dam - age due to a natural disaster; • the failure to obtain regulatory approvals; and • the occurrence of a material event with respect to an acquirer, such as dissolution and bankruptcy. A material change that would permit withdrawal must fit within one of the above narrowly defined withdrawal events; a broad material adverse change (MAC) or material adverse effect (MAE) condition is not permitted. A financing condi -
tion is also not permitted and an acquirer must prepare, as part of the tender offer registration statement, a document evidencing pre-arranged financing on a firmly committed basis. If the pre-arranged financing is subject to conditions, the substance of these conditions is generally required to be described in the statement. 6.5 Minimum Acceptance Conditions A minimum acceptance condition is permitted for a tender offer. Where a minimum acceptance condition is specified in the tender offer registra - tion statement, an acquirer will not purchase any shares if the number of shares tendered is lower than that specified minimum number. If a mini - mum acceptance condition is set at the com - mencement of the tender offer, that minimum threshold may not be increased by the acquirer, but the acquirer may decrease or remove the condition. 100% Ownership In a 100% acquisition deal, the minimum accept - ance condition is traditionally set such that the voting rights held by an acquirer after the tender offer will reach two thirds of a target company’s voting rights on a fully diluted basis. The own - ership of two thirds of the voting rights of the target company will ensure that the acquirer will be able to pass a special resolution of the share - holders at a shareholders’ meeting (eg, merger, amendment to the articles, dissolution). The acquirer will then proceed to the second step of the acquisition to squeeze out any remaining shareholders who did not tender their shares in the tender offer (see 6.10 Squeeze-Out Mecha- nisms ). More recently, minimum acceptance conditions are sometimes set below the two-thirds thresh- old to increase the likelihood of a successful tender offer. One of the reasons for this trend
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