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Appendix 1
ABOUT THE AUTHORS
THOMAS SACHERAshurst LLPThomas Sacher is a partner at Ashurst LLP since 1 July 2015. From 1986 through June 2015 Thomas Sacher was a member and, from 1992 through June 2015, partner of another German law firm. He studied law at the universities of Munich and Regensburg and received admission to the Bar in 1986. In 1990 he received a PhD (Dr jur) from the University of Regensburg.
Dr Sacher specialises in the areas of M&A, private equity and venture capital. He advises his national and international clients in a variety of corporate law matters related to domestic and cross-border transactions and provides legal advice on transformations, mergers, formation of joint ventures, stock option plans and other corporate transactions.
ASHURST LLPLudwigstraße 880539 MunichGermanyTel: +49 89 24 44 21 100Fax: +49 89 24 44 21 [email protected]
The Mergers & Acquisitions
Review
Law Business Research
Ninth Edition
Editor
Mark Zerdin
The Mergers & Acquisitions Review
The Mergers & Acquisitions ReviewReproduced with permission from Law Business Research Ltd.
This article was first published in The Mergers & Acquisitions Review - Edition 9(published in August 2015 – editor Mark Zerdin)
For further information please [email protected]
The Mergers & Acquisitions
Review
Ninth Edition
EditorMark Zerdin
Law Business Research Ltd
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i
The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
ACKNOWLEDGEMENTS
AABØ-EVENSEN & CO ADVOKATFIRMA
ÆLEX
AGUILAR CASTILLO LOVE
AKD NV
ALLEN & GLEDHILL LLP
ANDERSON MŌRI & TOMOTSUNE
ARIAS, FÁBREGA & FÁBREGA
ASHURST LLP
AZMI & ASSOCIATES
BHARUCHA & PARTNERS
BOWMAN GILFILLAN
BREDIN PRAT
BRIGARD & URRUTIA
CLEARY GOTTLIEB STEEN & HAMILTON
CORRS CHAMBERS WESTGARTH
COULSON HARNEY
CRAVATH, SWAINE & MOORE LLP
Acknowledgements
ii
DELFINO E ASSOCIATI WILLKIE FARR & GALLAGHER LLP
DITTMAR & INDRENIUS
DRYLLERAKIS & ASSOCIATES
ELLEX
FENXUN PARTNERS
HARNEYS
HENGELER MUELLER
HEUKING KÜHN LÜER WOJTEK
ISOLAS
KBH KAANUUN
KEMPHOOGSTAD, S.R.O.
KIM & CHANG
KINSTELLAR, S.R.O., ADVOKÁTNÍ KANCELÁŘ
KLART SZABÓ LEGAL LAW FIRM
LEGAL ATTORNEYS & COUNSELORS
LETT LAW FIRM P/S
MAKES & PARTNERS LAW FIRM
MATTOS FILHO, VEIGA FILHO, MARREY JR E QUIROGA ADVOGADOS
MNKS
MORAVČEVIĆ VOJNOVIĆ I PARTNERI IN COOPERATION WITH SCHÖNHERR
MOTIEKA & AUDZEVIČIUS
NISHIMURA & ASAHI
OSLER, HOSKIN & HARCOURT LLP
Acknowledgements
iii
PÉREZ BUSTAMANTE & PONCE
POPOVICI NIȚU & ASOCIAȚII
ROJS, PELJHAN, PRELESNIK & PARTNERS
RUBIO LEGUÍA NORMAND
RUSSIN, VECCHI & HEREDIA BONETTI
S HOROWITZ & CO
SCHELLENBERG WITTMER LTD
SCHINDLER RECHTSANWÄLTE GMBH
SELVAM & PARTNERS
SEYFARTH SHAW LLP
SLAUGHTER AND MAY
STRELIA
SYCIP SALAZAR HERNANDEZ & GATMAITAN
TORRES, PLAZ & ARAUJO
URÍA MENÉNDEZ
UTEEM CHAMBERS
VON WOBESER Y SIERRA, SC
WEERAWONG, CHINNAVAT & PEANGPANOR LTD
WH PARTNERS
WILSON SONSINI GOODRICH & ROSATI
v
Editor’s Preface .................................................................................................xiii Mark Zerdin
Chapter 1 EU OVERVIEW .........................................................................1 Mark Zerdin
Chapter 2 EU COMPETITION OVERVIEW ..........................................11 Götz Drauz and Michael Rosenthal
Chapter 3 EUROPEAN PRIVATE EQUITY .............................................19 Thomas Sacher
Chapter 4 US ANTITRUST ......................................................................32Scott A Sher, Christopher A Williams and Bradley T Tennis
Chapter 5 CROSS-BORDER EMPLOYMENT ASPECTS OF INTERNATIONAL M&A .......................................................53
Marjorie Culver, Darren Gardner, Ming Henderson, Dominic Hodson and Peter Talibart
Chapter 6 M&A LITIGATION .................................................................67Mitchell A Lowenthal, Roger A Cooper and Matthew Gurgel
Chapter 7 AUSTRALIA .............................................................................74Braddon Jolley, Sandy Mak and Jaclyn Riley-Smith
Chapter 8 AUSTRIA ..................................................................................87Clemens Philipp Schindler
Chapter 9 BAHRAIN ................................................................................97Haifa Khunji and Natalia Kumar
CONTENTS
vi
Contents
Chapter 10 BELGIUM ..............................................................................110Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas
Chapter 11 BRAZIL...................................................................................122Moacir Zilbovicius and Rodrigo Ferreira Figueiredo
Chapter 12 BRITISH VIRGIN ISLANDS ................................................132Jacqueline Daley-Aspinall and Sarah Lou Rockhead
Chapter 13 CANADA ................................................................................143Robert Yalden, Emmanuel Pressman and Jeremy Fraiberg
Chapter 14 CAYMAN ISLANDS ..............................................................158Marco Martins
Chapter 15 CHINA ...................................................................................173Lu Yurui and Ling Qian
Chapter 16 COLOMBIA ...........................................................................187Sergio Michelsen Jaramillo
Chapter 17 COSTA RICA .........................................................................203John Aguilar Jr and Alvaro Quesada
Chapter 18 CYPRUS .................................................................................211Nancy Ch Erotocritou
Chapter 19 CZECH REPUBLIC ...............................................................218Lukáš Ševčík, Jitka Logesová and Bohdana Pražská
Chapter 20 DENMARK ............................................................................225Sebastian Ingversen and Nicholas Lerche-Gredal
Chapter 21 DOMINICAN REPUBLIC ....................................................236María Esther Fernández A de Pou, Mónica Villafaña Aquino and Laura Fernández-Peix Perez
vii
Contents
Chapter 22 ECUADOR .............................................................................246Diego Pérez-Ordóñez
Chapter 23 ESTONIA ...............................................................................257Sven Papp and Sven Böttcher
Chapter 24 FINLAND...............................................................................269Jan Ollila, Wilhelm Eklund and Jasper Kuhlefelt
Chapter 25 FRANCE .................................................................................281Didier Martin and Hubert Zhang
Chapter 26 GERMANY .............................................................................296Heinrich Knepper
Chapter 27 GIBRALTAR ...........................................................................309Steven Caetano
Chapter 28 GREECE .................................................................................321Cleomenis G Yannikas, Sophia K Grigoriadou and Vassilis S Constantinidis
Chapter 29 HONG KONG .......................................................................334Jason Webber
Chapter 30 HUNGARY .............................................................................344Levente Szabó and Klaudia Ruppl
Chapter 31 ICELAND ...............................................................................360Hans Henning Hoff
Chapter 32 INDIA .....................................................................................368Justin Bharucha
Chapter 33 INDONESIA ..........................................................................386Yozua Makes
Contents
viii
Chapter 34 ISRAEL ...................................................................................400Clifford Davis and Keith Shaw
Chapter 35 ITALY ......................................................................................410Maurizio Delfino
Chapter 36 JAPAN .....................................................................................422Hiroki Kodate and Masami Murano
Chapter 37 KENYA ...................................................................................431Joyce Karanja-Ng’ang’a, Wathingira Muthang’ato and Felicia Solomon Nyale
Chapter 38 KOREA ...................................................................................442Jong Koo Park, Bo Yong Ahn, Sung Uk Park and Young Min Lee
Chapter 39 LITHUANIA ..........................................................................457Giedrius Kolesnikovas and Michail Parchimovič
Chapter 40 LUXEMBOURG ....................................................................465Marie-Béatrice Noble, Raquel Guevara, Stéphanie Antoine
Chapter 41 MALAYSIA .............................................................................479Rosinah Mohd Salleh and Norhisham Abd Bahrin
Chapter 42 MALTA ...................................................................................491James Scicluna
Chapter 43 MAURITIUS ..........................................................................503Muhammad Reza Cassam Uteem and Basheema Farreedun
Chapter 44 MEXICO ................................................................................513Luis Burgueño and Andrés Nieto
Chapter 45 MONTENEGRO ...................................................................523Slaven Moravčević and Dijana Grujić
Contents
ix
Chapter 46 MYANMAR ............................................................................533Krishna Ramachandra and Benjamin Kheng
Chapter 47 NETHERLANDS ...................................................................544Carlos Pita Cao and François Koppenol
Chapter 48 NIGERIA ................................................................................557Lawrence Fubara Anga
Chapter 49 NORWAY ...............................................................................562Ole K Aabø-Evensen
Chapter 50 PANAMA ................................................................................600Andrés N Rubinoff
Chapter 51 PERU ......................................................................................611Emil Ruppert
Chapter 52 PHILIPPINES .........................................................................621Rafael A Morales, Philbert E Varona, Hiyasmin H Lapitan and Patricia A Madarang
Chapter 53 PORTUGAL ...........................................................................630Francisco Brito e Abreu and Joana Torres Ereio
Chapter 54 ROMANIA .............................................................................643Andreea Hulub, Ana-Maria Mihai and Vlad Ambrozie
Chapter 55 RUSSIA ...................................................................................657Scott Senecal, Yulia Solomakhina, Polina Tulupova, Yury Babichev and Alexander Mandzhiev
Chapter 56 SERBIA ...................................................................................675Matija Vojnović and Luka Lopičić
Chapter 57 SINGAPORE ..........................................................................685Lim Mei and Lee Kee Yeng
Contents
x
Chapter 58 SLOVENIA .............................................................................694David Premelč, Bojan Šporar and Mateja Ščuka
Chapter 59 SOUTH AFRICA ...................................................................705Ezra Davids and Ashleigh Hale
Chapter 60 SPAIN .....................................................................................716Christian Hoedl and Javier Ruiz-Cámara
Chapter 61 SWITZERLAND ....................................................................732Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane
Chapter 62 THAILAND ...........................................................................745Pakdee Paknara and Pattraporn Poovasathien
Chapter 63 TURKEY .................................................................................753Emre Akın Sait
Chapter 64 UNITED ARAB EMIRATES..................................................762DK Singh and Stincy Mary Joseph
Chapter 65 UNITED KINGDOM ...........................................................774Mark Zerdin
Chapter 66 UNITED STATES ..................................................................793Richard Hall and Mark Greene
Chapter 67 VENEZUELA .........................................................................834Guillermo de la Rosa, Juan D Alfonzo, Nelson Borjas E, Pedro Durán A and Maritza Quintero M
Chapter 68 VIETNAM ..............................................................................847Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc
Contents
xi
Appendix 1 ABOUT THE AUTHORS .....................................................857
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .....905
xiii
EDITOR’S PREFACE
By a number of measures, it could be argued that it has been some time since the outlook for the M&A market looked healthier. The past year has seen a boom in deal making, with many markets seeing post-crisis peaks and some recording all-time highs. Looking behind the headline figures, however, a number of factors suggest deal making may not continue to grow as rapidly as it has done recently.
One key driver affecting global figures is the widely expected rise of US interest rates. Cheap debt has played a significant part in the surge of US deal making in the first few months of 2015, and the prospects of a rate rise may have some dampening effects. However, the most recent indications from the Federal Reserve have suggested that any rise will be gradual and some market participants have pushed back predictions for the first rate rise to December 2015. Meanwhile, eurozone and UK interest rates look likely to remain low for some time further.
The eurozone returned to the headlines in June as the prospect of a Greek exit looked increasingly real. Even assuming Greece remains in the euro (as now seems likely), the crisis has severely damaged the relationship between Greece and its creditors. The brinksmanship exhibited by all parties means that meaningful progress cannot occur except at the conclusion of a crisis: the idea that reform will benefit Greece has been lost and each measure extracted by creditors is couched as a concession. However, while the political debate has become ever more fractious, the market’s response to the crisis has been relatively sanguine. This is largely a result of the fact that the volume of Greek debt is no longer in the market, but in the hands of institutions. But it is also a sign of the general market recovery and expectations that major economies will continue to grow.
Perhaps one of the more interesting emerging trends in the last year is the interplay between growth and productivity. Some commentators have suggested that the recent rise in deal making is a symptom of a climate in which businesses remain reluctant to invest in capital and productivity. Pessimistic about the opportunities for organic growth, companies instead seek to grow profits through cost savings on mergers. It is difficult to generalise about such matters: inevitably, deal drivers will vary from industry to industry, from market to market. However, if synergies have been the principal motivation in
Editor’s Preface
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much of the year’s deal making (it certainly has been in a number of large-cap deals) then it may be that the market is a little farther from sustainable growth than some would like to think.
I would like to thank the contributors for their support in producing the ninth edition of The Mergers & Acquisitions Review. I hope that the commentary in the following chapters will provide a richer understanding of the shape of the global markets, together with the challenges and opportunities facing market participants.
Mark ZerdinSlaughter and MayLondonAugust 2015
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Chapter 36
JAPAN
Hiroki Kodate and Masami Murano1
I OVERVIEW OF M&A ACTIVITY
Due to the changing Japanese and global economy, the level of M&A activity involving Japanese companies continued to be moderate throughout 2014. However, thanks to the ‘Abenomics’, a set of measures introduced by Japanese Prime Minister Shinzo Abe after his December 2012 re-election to the post and designed to revive the sluggish economy with ‘three arrows’: a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to boost Japan’s competitiveness, Japanese stock has risen and the Japanese yen has weakened significantly since early 2013.
Thus far this apparently has not had a significant effect on the overall M&A activity involving Japanese companies but it has the potential to significantly alter the Japanese M&A landscape.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
In Japan, the Companies Act and the Financial Instruments and Exchange Act (FIEA) provide the fundamental statutory framework for M&A transactions. The Companies Act provides fundamental rules concerning companies and applies to both public and closed companies, whereas the FIEA makes provision for, among other things, public offers of securities, tender offers and insider trading, and is an important source of rules regulating M&A transactions involving public companies. There are also other important laws such as the Antimonopoly Act (AMA) in which Japanese merger control rules are contained. In relation to foreign investment in Japanese companies, the Foreign Trade
1 Hiroki Kodate is a partner and Masami Murano is an associate at Anderson Mōri & Tomotsune.
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and Foreign Exchange Act requires the approval of, or reporting to, relevant ministries in certain circumstances.
The listing rules promulgated by the Japanese stock exchanges provide for, inter alia, timely disclosure obligations, corporate governance guidelines and delisting requirements, which are also important for deals involving public companies.
Last, a number of recent court cases have the potential to significantly affect the M&A framework of Japan. See Section V, infra.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
i Amendments to the Companies Act
In May 2015, the amended Companies Act of 2014 (the Amendment Act) came into effect, following the promulgation in June 2014. The following briefly reviews three major points regarding M&A transactions.
Third-party allocation involving a change in the controlling shareholderUnder the former Companies Act, when a public company intends to make a third-party allocation of its shares, a board resolution would normally suffice and a resolution of a shareholders’ meeting was not required unless the allocation price is ‘particularly favourable’ to the allottee. Consequently, even though it could greatly impact other shareholders, an allocation that results in a change in the controlling shareholder (a shareholder who owns a majority of the voting rights of all shareholders) did not require a shareholders’ resolution as long as the allocation price was not ‘particularly favourable’ to the allottee.2
To remedy this situation, the Amendment Act requires a public company that intends to conduct a third-party allocation of its shares that results in a change in the controlling shareholder to: (1) give prior notice to existing shareholders or make a public announcement; and (2) except in very limited circumstances, if shareholders who hold one-tenth or more of the voting rights of all shareholders give notice of their opposition within a specified period, pass an ordinary resolution at a shareholders’ meeting that approves the allocation of shares.
In regards to the first requirement, the Amendment Act provides that the name and address of the allottee that will hold a majority of the voting rights of all shareholders and the exact number of the voting rights that the allottee will hold after the allocation must be divulged for enhanced disclosure.
2 The Tokyo Stock Exchange amended the listing rules in 2009 so that when a listed company intends to make a third party allotment of its shares which results in a dilution of 25 per cent or more or a change in the controlling shareholder, an opinion by a party independent from the company’s management (such as an outside director or outside company auditor) or a shareholders’ resolution must be obtained. Similarly, the Financial Services Agency of Japan also amended the disclosure guidelines in 2010 to achieve enhanced disclosure.
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Although the above would not be an additional duty for listed companies that have already disclosed relevant information pursuant to the listing rules or the FIEA, there may be cases where a third-party allocation is significantly delayed by the opposition of shareholders due to the second requirement. To avoid such situation, it is advisable to set a flexible schedule that takes into account possible opposition from shareholders (and the consequent shareholders’ meeting that must be held) or obtain prior approval at a shareholders’ meeting.
Assignment of shares in a subsidiary by the parent companyA parent company losing control over its subsidiary from selling its shares in that subsidiary can affect the parent company in a similar way to a parent company assigning all or part of its businesses. Despite this similarity, the former Companies Act did not require a parent company to obtain an approval from a shareholders’ meeting for assignment of its shares in its subsidiary, whereas it did for a business assignment.
The Amendment Act provides that if a company assigns all or part of its shares in its subsidiary, the company must obtain prior approval for the assignment agreement by a special resolution at a shareholders’ meeting, unless: (1) the book value of the shares or units being assigned does not exceed 20 per cent (or, in cases where a lesser proportion is prescribed in the articles of incorporation, such proportion) of the value of the total assets of the parent company; or (2) on the effective date of the assignment, the parent company holds a majority of the voting rights of all shareholders of the subsidiary.
Due to this new requirement for approval at the parent company’s shareholders’ meeting, the sales process of a subsidiary may take longer under the Amendment Act.
Buyout by a special controlling shareholderThe Amendment Act has a new provision that allows a special controlling shareholder (SCS) – a person who holds at least 90 per cent of the voting rights of all shareholders of a company – to demand that all other shareholders of the company sell their shares to the SCS.3
A SCS who intends to make such demand is first required to notify the company about conditions of the sale, including the amount of money to be paid to selling shareholders, and the date on which the SCS will acquire the shares. If the company consents to the conditions, it must give notice to the selling shareholders no later than 20 days prior to the acquisition date, stating, inter alia, the details of the SCS and conditions of the sale. When the company gives such notice, the SCS is deemed to have made the demand to other shareholders for the sale of their shares, and the SCS will acquire all of the shares on the date of acquisition.
For an SCS who intends to carry out a cash-out of the remaining shareholders, this new rule will speed up the process as it does not require a shareholders’ meeting unlike general cash-out techniques that were used under the former Companies Act. Therefore, this new rule is likely to be used in practice.
3 The Amendment Act provides that these new cash out rules also apply to share options.
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IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
i Outbound transactions
Due to increasing recognition of the importance of overseas operations among Japanese companies, there continues to be large-scale outbound M&A transactions in which Japanese companies are acquiring high-value businesses outside Japan. Last year’s notable examples are as follows.
Suntory Holdings Limited/Beam IncIn January 2014, Suntory Holdings Limited (Suntory), a leader in alcoholic and non-alcoholic beverages in Japan, and Beam Inc (Beam), one of the world’s leading premium spirits companies, entered into a definitive agreement under which Suntory would acquire all outstanding shares of Beam for US$83.50 per share in cash, which amounted to approximately US$16 billion in total. The acquisition was completed in May 2014, and Beam was renamed Beam Suntory Inc (Beam Suntory). Beam Suntory aims to achieve growth in markets around the world, including the United States, the world’s largest spirits market, by leveraging its combined portfolio of leading brands and utilising its strengthened global distribution network.
Dai-ichi Life Insurance Company, Limited/Protective Life CorporationIn June 2014, Dai-ichi Life Insurance Company, Limited (Dai-ichi Life), the second largest private life insurance company in Japan, entered into a definitive agreement to acquire 100 per cent of the outstanding shares of Protective Life Corporation (Protective Life), a US life insurance group listed on the New York Stock Exchange. The acquisition was completed in February 2015 with a total transaction amount of approximately US$5.6 billion. As a result of the transaction, Protective Life became a wholly owned subsidiary of Dai-ichi Life and gained access to financial resources and global management expertise of Dai-ichi Life Group (the Group). Protective Life aims to act as the Group’s strategic growth platform in North America and contribute to (or enhance) the Group’s profits.
Otsuka Holdings Co, Ltd/Avanir Pharmaceuticals, IncIn December 2014, Otsuka Pharmaceutical Co, Ltd (Otsuka Pharmaceutical), a health-care company and a wholly owned subsidiary of Otsuka Holdings Co, Ltd, announced that it will acquire Avanir Pharmaceuticals, Inc (Avanir), a bio-pharmaceutical company founded in Southern California that specialises in CNS diseases, via an all-cash tender offer that will be followed by a second-step merger through a wholly owned subsidiary of Otsuka America, Inc. The acquisition was completed in January 2015 with a total transaction amount of approximately US$3.5 billion. The acquisition aims to accelerate Otsuka Pharmaceutical’s current expansion strategy, widen its overall CNS portfolio to include medications in psychiatry and neurology, and contribute to both short and medium-term growth.
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ii Inbound transactions
Applied Materials Inc/Tokyo Electron LimitedIn September 2013, Applied Materials Inc (AMAT) and Tokyo Electron Limited (TEL) entered into a definitive agreement to create a new combined company via an all-stock combination that was valued at approximately US$29 billion. In the transaction, AMAT, a US-based company providing equipment, services and software for the manufacture of advanced semiconductor, flat panel display and solar photovoltaic products, was supposed to acquire TEL, a supplier of semiconductor, flat panel display and photovoltaic panel production equipment, for US$8.7 billion, which amounted to 68 per cent to the total value of inbound transactions in 2013. The business combination aimed to create a global innovator in semiconductor and display manufacturing technology and to achieve strategic visions of AMAT and TEL.
In February 2014, the companies announced that they have received clearance without conditions from the Committee on Foreign Investment in the United States. In April 2015, however, the business combination agreement was terminated after the US Department of Justice (DoJ) advised the parties that the coordinated remedy proposal submitted to regulators would not be sufficient to replace the competition lost from the transaction. Based on DoJ’s position, AMAT and TEL concluded that there is no realistic prospect for the completion of the transaction.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
i Court decisions
In 2013 and 2014, there were a number of notable court cases in Japan that may affect future M&A transactions. In this section, we discuss cases that clarify what directors’ duty of care entails in MBO transactions.
Rex Holdings caseIn April 2013, the Tokyo High Court issued a judgment on a claim filed by shareholders of Rex Holdings Co, Ltd (Rex), which had merged into a company known as AP8 Co, Ltd (AP8) at the time, against the directors of Rex. The shareholders sought to be compensated for losses from being forced to sell their shares in Rex at a low price in an MBO, in which AP8 launched a tender offer and a subsequent squeeze-out of remaining minority shareholders. The Tokyo High Court made the following decisions: (1) directors have a duty to fairly assess the value of the company in an MBO (however, the directors did not breach such duty in this case); and (2) under the specific circumstances of this case, the directors also had a duty to provide adequate information to the shareholders when Rex announced its approval of AP8’s tender offer (the directors breached such duty in this case but no damage was found).
With respect to the duty to fairly assess the value of the company, the Court explained that directors would be found in breach of this duty if they conducted an MBO at a price that does not appropriately reflect the value of the company because: (1) director’s duty of care is meant to protect interests of a company and its shareholders; and (2) shareholders’ interests in obtaining the fair value of their shares, including the
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increase in value after the MBO, cannot be protected if directors do not acquire the company at a price that reflects the fair value of the company. In this case, the Court found that the buyout price reflected the fair value of the company based on comparable peer company analysis and DCF analysis. Therefore, the Court held that the directors did not breach this duty.
On the other hand, the Court held that the directors breached the duty to disclose adequate information. In doing so, the Court took into consideration the fact that the press release announcing a major downward revision to the earnings estimates of Rex caused a significant drop in the share price approximately three months before the MBO, which gave rise to suspicion that the press release was intended to manipulate the stock price of Rex. The Court found that information regarding the press release was therefore necessary for shareholders to appropriately evaluate the buyout price, and the directors should have provided such information when Rex announced its approval of AP8’s tender offer.
Charle caseIn 2009, a shareholder of Charle Co, Ltd (Charle), a Japanese company that produces and sells ladies’ innerwear, filed a shareholder derivative suit against the then-directors of Charle, demanding compensation for Charle’s expenses for an MBO that ultimately failed. The shareholder claimed that the directors’ breach of duty of care and duty to disclose adequate information caused the MBO to fail. Ruling in favour of the shareholder, in October 2014, the Kobe District Court held for the first time that both directors and outside directors of a company can be held liable for a failed MBO if they did not satisfy their duties during the process.
In general, directors of a company assume a duty of care to the company. The Kobe District Court held that directors who planned an MBO assume, as a part of their duty of care: (1) a ‘duty to plan an MBO which will help increase the value of the company and to make efforts for realization (accomplishment) of the MBO’; (2) as derived from the duty mentioned in (1), a ‘duty not to take advantage of their positions when planning or executing an MBO or execute a significantly unreasonable MBO in order to benefit themselves or third parties’; (3) as derived from the duty mentioned in (1), a ‘duty to set up an impartial procedure for determination of tender offer price to address shareholders’ concerns about directors taking advantage of their positions and manipulating the amount of available information to gain unfair profits from the price determination process’; and (4) a duty to disclose adequate information so that shareholders can make informed decision whether to accept an MBO (the Court indicated that this duty would be breached if directors misrepresent important matters or fail to disclose important matters that ought to be made public or are necessary to avoid misunderstanding). The Court found that directors of Charle who led the MBO failed to satisfy the duties mentioned in (3) and (4) above, and held that they are liable for the expenses for the failed MBO in view of their breach of the duty mentioned in (3) above.
With respect to the outside directors, the Kobe District Court ruled that the outside directors had a ‘duty to assess whether the share price, which forms the basis of tender offer price, was fairly determined;’ a ‘duty to set up an impartial procedure for determining tender offer price to address shareholders’ concerns about procedural
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fairness (the duty of procedural fairness);’ a ‘duty to keep the directors in check through the board of directors so that they comply with the duty of procedural fairness;’ and a duty to disclose adequate information so that shareholders can make informed decision whether to accept an MBO. The Court found that the outside directors also failed to satisfy their duty to disclose information, but it denied their connection to the expenses and declined to hold them liable.
Overall, these cases clarified the details of duties that directors and outside directors assume when conducting an MBO, and are expected to influence future MBOs.
ii M&A transactions in Japan
H2O Retailing Corporation/Izumiya Co, LtdIn January 2014, H2O Retailing Corporation (H2O), the parent of Hankyu Hanshin Department Stores, and Izumiya Co, Ltd (Izumiya), a supermarket operator, concluded a share exchange agreement. The business combination was completed in June 2014 and Izumiya became a wholly owned subsidiary of H2O. The reported value of the deal was US$1.1 billion. Izumiya was delisted in May 2014.
Mitsubishi Chemical Holdings Corporation/Taiyo Nippon Sanso CorporationIn May 2014, Mitsubishi Chemical Holdings Corporation (MCHC), Japan’s biggest chemical company, announced that it would purchase Taiyo Nippon Sanso Corporation (TNSC) for more than ¥100 billion to take advantage of US demand for nitrogen and other gases fueled by the shale gas boom. TNSC is a major supplier of industrial gases, including nitrogen, which is required in large quantities when producing chemicals such as ethylene from shale gas. In November 2014, it was announced that the tender offer ended and TNSC became a consolidated subsidiary of MCHC. The takeover is expected to help solidify MCHC’s position in the US petrochemicals sector.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
LBOs have become more common in Japan in recent years. Banks operating in Japan extend loans to acquisition vehicles funded partly by equity so that these vehicles may make a tender offer over a Japanese-listed target to acquire all of the issued shares in it (the first-tier transaction) followed by a squeeze-out transaction for the remaining shareholders with the approval of shareholders of the target at a shareholders’ meeting (the second-tier transaction; see above on the Amendment Act’s introduction of the new cash-out rule). LBOs are also often utilised in the context of private acquisitions. Extension of loans is often made in the form of syndicated loans, which involve a number of banks in the case of large-scale buyouts.
VII EMPLOYMENT LAW
The Act on the Succession to Labor Contracts upon Company Split (the Succession Act), the Ordinance for Enforcement and related guidelines of the Succession Act provide a labour-friendly legal framework. Article 2, paragraph 1 of the Succession Act stipulates that a company conducting a company split (split company) shall notify its workers
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before doing so. Matters that need to be notified include the presence or absence of provisions in the split contract that a succeeding company shall take on labour contracts and the deadline for filing an objection with the split company about the succeeding company not taking on labour contracts. A leading case on consequences of breaching the above duty is Hanshin Bus.
In April 2014, the Kobe District Court Amagasaki Branch issued a judgment in response to a claim filed by an employee with disabilities of Hanshin Electric Railway Co, Ltd (Hanshin Railway, the split company) against Hanshin Bus (the succeeding company). The Kobe District Court Amagasaki Branch made the following decisions: (1) there was an oral agreement between the employee and Hanshin Railway that the latter will provide reasonable accommodation for the former and (2) it is offensive to public morals that Hanshin Railway obtained from the employee consent to terminate the labour contract with Hanshin Railway and sign a new contract with Hanshin Bus that lacked the accommodation provision without satisfying the duty to notify, and the new contract is invalid. Based on the above decisions, the Kobe District Court Amagasaki Branch concluded that all provisions of the labour contract between the employee and Hanshin Railway, including the accommodation provision, should be succeeded to Hanshin Bus, as would have been the case had the employee filed a lawful objection under the Succession Act.
VIII TAX LAW
In April 2011, Yahoo! Japan Corporation (Yahoo! Japan) filed a lawsuit in the Tokyo District Court to challenge an administrative decision of the Tokyo Regional Tax Bureau (TRTB), in which it applied Article 132-2 of the Corporate Tax Act (CTA), a catch-all anti-avoidance rule concerning corporate reorganisations (the Catch-All Rule).
In February 2009, Yahoo! Japan purchased SoftBank IDC Solutions Kabushiki Kaisha (IDC) from Yahoo! Japan’s parent company for approximately ¥45 billion. At the time, IDC had net operating losses (NOLs) of approximately ¥54 billion. This purchase was followed by a merger of IDC into Yahoo! Japan a month later, and Yahoo! Japan, in its 2009 tax return, deducted the NOLs that it had succeeded from IDC. Following this deduction, the TRTB conducted an audit of Yahoo! Japan and asserted that the merger lacked a business purpose; the purchase price of IDC was calculated based on unrealistic data; and the transaction was solely aimed at exploiting the NOLs taken over by Yahoo! Japan from IDC. Based on the above, the TRTB concluded that the real reason behind the merger was tax avoidance, disallowed the deduction of the NOLs, and determined that Yahoo! Japan owed a tax liability of an estimated ¥26.5 billion. In March 2014, the Tokyo District Court dismissed Yahoo! Japan’s claim. Yahoo! Japan appealed but the Tokyo High Court also dismissed Yahoo! Japan’s claim in November 2014 basically for the same reasons as the Tokyo District Court had indicated.
Yahoo! Japan is considered as the first case where the Catch-All Rule has been applied since it was added to the CTA in 2001 along with provisions that introduced tax-free corporate reorganisations. Under the Catch-All Rule, regardless of the type of corporate reorganisation and accounting treatment for tax purposes, a district director of a regional tax office may: (1) challenge the tax benefits sought by a corporation that
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was a party to merger, corporate divisive reorganisation, in-kind incorporation, in-kind distribution, share exchange, or transfer of shares (each a ‘corporate reorganisation’); and (2) assess taxable income, losses and the amount of tax liabilities of such corporation. The district director can exercise the above authorities when it is found that the burden of corporate tax is ‘unjustifiably lightened’ by corporate reorganisation.
The phrase ‘unjustifiably lightened’ gives the district director considerable liberty to apply the Catch-All Rule to various corporate reorganisations because there are no objective standards to determine whether a corporate tax burden has been ‘unjustifiably lightened.’ As a general rule, to avoid application of the Catch-All Rule and achieve desired corporate structure, it is necessary to establish a non-tax business purpose for corporate reorganisation (i.e., conduct a transaction that is commercially reasonable even without the tax benefit rather than a transaction that is solely motivated by the tax benefit). However, the Tokyo District Court stated that even if it is found that each stage of corporate reorganisation had a business purpose, the phrase ‘unjustifiably lightened’ will apply if reorganisation as a whole was clearly contrary to the intent and purpose of the tax system. Therefore, a corporate reorganisation needs to be carried out with the intent and purpose of the tax law in mind even if it has business purposes, because the district director may take actions against conducts that can be deemed as contrary to the intent and purpose of the tax law.
IX COMPETITION LAW
In December 2013, important provisions of the AMA concerning the Fair Trade Commission (FTC) were amended. The amended AMA abolished the hearing procedure conducted by the FTC enabled the Tokyo District Court instead to hear appeals against any cease and desist orders of the FTC; and improved the clarity and consistency of the procedure used by the FTC to impose cease and desist orders.4 The amended AMA came into effect in April 2015.
X OUTLOOK
Due to the Abenomics, Japanese stock remains high and the Japanese yen continues to be relatively weak. It has yet to be seen how long these trends will continue and how much they will eventually affect the level of activity of M&A transactions involving Japanese companies.
4 For example, it required the FTC to issue an explanation before imposing an order and established provisions on the rights of the recipient regarding inspection and duplication of evidence found by the FTC.
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ABOUT THE AUTHORS
HIROKI KODATEAnderson Mōri & TomotsuneHiroki Kodate is a partner at Anderson Mōri & Tomotsune, and is principally involved in the fields of corporate and commercial law, with an emphasis on M&A and corporate governance. In addition to his experience at Anderson Mōri & Tomotsune, he served as an attorney at the Civil Affairs Bureau of the Ministry of Justice of Japan (2002 to 2005), where he was engaged in the modernisation of Japanese corporate law. He also worked at Slaughter and May in London from 2000 to 2001.
Mr Kodate received his LLM from Harvard Law School (2000) and his LLB from the University of Tokyo (1994).
Mr Kodate is a member of both the Daini Tokyo Bar Association in Japan (since 1996) and the New York Bar (since 2001). He speaks Japanese and English. [email protected]
MASAMI MURANOAnderson Mōri & TomotsuneMasami Murano is an associate at Anderson Mōri & Tomotsune, and her practice areas include corporate law and M&A. She received her JD degree from Keio University (2006). She is a member of the Daiichi Tokyo Bar Association in Japan (since 2007). She speaks Japanese and English.
ANDERSON MŌRI & TOMOTSUNEAkasaka K-Tower2–7, Motoakasaka 1-chomeMinato-ku 107-0051 TokyoJapanTel: +81 3 6888 1000www.amt-law.com/en
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