In takeovers of listed companies, whether effected on a stock exchange through the acquisition of shares or outside a stock exchange by gaining control of the company through the acquisition of shares directly from shareholders, the takeover bid (TOB) procedure is crucial. In Japan there have been situations where trading through the Tokyo Stock Exchange Trading Network System (ToSTNeT) was used to circumvent the TOB system then in effect. An example of this is Livedoor’s attempted hostile takeover of Fuji Television’s parent company, Japan Broadcasting, in 2005. Accordingly, Japanese laws have since broadened the circumstances under which the mandatory TOB procedure must be followed. As a result, the law in this area has become quite complex.
When the procedure applies
The basic law governing the TOB system in Japan is the Financial Instruments and Exchange Law. The government decrees and other
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procedural rules that serve as its subordinate legislation are intricate and complex. The procedure to be followed during a takeover varies tremendously depending on whether the TOB procedure must be followed. The costs involved (such as securities company service charges) also vary greatly, as does the control premium (i.e. the portion by which the price that the acquirer pays to secure control of the target company exceeds its market value). Accordingly, in a takeover plan, an accurate understanding of the conditions that trigger the TOB procedure is crucial. In general terms, the TOB procedure must be followed in the following circumstances:
- if the acquisition target has not only shares, but also warrants and warrant bonds;
- if, after an acquisition of shares off the market, the percentage of the target company’s shares held by the acquirer and its connected persons would exceed 5% unless, within 60 days, persons numbering fewer than 10 attempt a takeover;
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Hiroshige Nakagawa is a partner at Anderson Mori and Tomotsune and chief representative of its Beijing office.
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