Global Public M&A Guide

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Before a Public Takeover Bid
3. Before a Public Takeover Bid

[Last updated: 1 January 2025, unless otherwise noted]

3.1 Shareholding rights and powers

The table below provides an overview of the different rights and powers that are attached to different levels of shareholding within a Japanese listed company:

Shareholding

Rights

One share
  • The right to attend and vote at the general meeting of shareholders.
  • The right to ask questions and to make proposals at the general meeting of shareholders.
  • The right to commence an action for the rescission or nullity of a resolution at the general meeting of shareholders.
  • The right to commence an action on behalf of the company to pursue the liabilities of directors and company auditors.
  • The right to demand the suspension of unlawful or unfair issuance of new shares, merger, stock swap or company split.
  • The right to demand commencement of special liquidation procedures.
  • The right to demand inspection of financial statements.

1%
  • The right to propose agenda items at the general meeting of shareholders.
  • The right to request a court appointed inspector to investigate the convening and resolution procedures for the general meeting of shareholders.

3%
  • The right to demand an extraordinary general meeting of shareholders.
  • The right to demand to inspect the books, records and relevant documents of the company.
  • The right to request a court to review a majority decision not to remove a director for wrong-doing.
  • The right to demand court-supervised inspection of the company's operation and finances.

10%

The right to request a court to review dissolution of the company for unavoidable reasons.

One-third plus one share

Negative control – the ability to veto special resolutions at the general meeting of shareholders.

Majority

The ability to pass an ordinary resolution at the general meeting of shareholders:

  • to appoint and dismiss directors and company auditors;
  • to approve financial statements (in cases where the board may not approve them due to qualified audit reports or other reasons);
  • to reduce the capital reserve; and
  • to appoint an inspector to investigate documentation submitted to the shareholders' meetings.

Two-thirds

The ability to pass a special resolution at the general meeting of shareholders:

  • to approve a merger, business transfer, stock swap or company split;
  • to amend the articles of incorporation;
  • to reduce stated capital; and
  • to dissolve the company.

90%
  • Special Controlling Relationship – the right to request other shareholders and holders of stock options to sell their shares and stock option.
  • The ability to implement a merger, stock swap or company split without approval of the general meeting of shareholders.

3.2 Methods of acquisition of listed companies

In addition to the public tender offers that are regulated in Japan, including exchange offers, there are alternative methods of acquisition of listed companies in Japan. These include the acquisition of new shares through third party allotment, merger (gappei) and stock swap (kabushiki koukan) under the Companies Act. These alternative measures are also subject to the disclosure requirements under the FIEA and the stock exchange rules, insider trading and market manipulation rules, merger control and foreign securities regulations. The bidder should carefully consider the pros and cons, as well as the suitability of these alternative measures under the specific circumstances concerned. These alternative methods are not further discussed herein.

3.3 Disclosure of shareholding

Under the FIEA, an investor is required to file a substantial shareholding report within five business days after it becomes a beneficial holder of more than 5% of the outstanding shares of a listed company. Further, an amendment report to the substantial shareholding report is required to be filed within five business days if the shareholding percentage in the listed company increases or decreases by 1% or more. When determining whether or not a threshold has been passed, the shares held by certain related persons or persons with whom the investor has entered into certain agreements, e.g., voting agreements, must also be counted towards the shareholding percentage.

3.4 Timely disclosures by the target and the bidder

The target and the bidder, if a listed company in Japan, must continue to comply with the normal disclosure rules under the FIEA and the applicable stock exchange rules. Please see 5 for the disclosure requirements in relation to public tender offers in Japan. If any disclosure is made by the target prior to or during the tender offer period, the bidder should consider whether or not such disclosure has any impact on the documentation for the tender offer. For instance, if the target files a quarterly financial report containing material information, e.g., changes to the target's directors, during the tender offer period, an amendment to the tender offer registration statement may need to be filed by the bidder. Furthermore, if the bidder is a listed company, its decision to launch a tender offer must be announced in a timely manner in accordance with the rules of the relevant stock exchange.

3.5 Insider dealing and market manipulation

Before, during and after a tender offer, the normal rules regarding insider dealing remain applicable. The FIEA defines inside information which is subject to the insider trading rules thereunder. In addition to inside information relating to the target or its group companies or certain major shareholders, the bidder's decision to conduct or cancel a tender offer or other acquisition of 5% or more of the outstanding shares of a listed company is regarded by the FIEA as another category of inside information (see 6).

The FIEA prohibits, among other things, market manipulation, spreading rumors or using fraudulent means for the purpose of trading or affecting the market price of the target's stock.

3.6 Due diligence

The Japanese public tender offer rules do not contain any specific rules regarding whether or not, or how, a prior due diligence can be organized. The concept of a prior due diligence by a bidder is generally accepted in the market, and appropriate mechanisms have been developed in practice to organize a prior due diligence and to deal with insider trading rules.

3.7 Anti-takeover measures

Some Japanese listed companies have introduced anti-takeover measures to deal with unsolicited offers. Japanese listed companies are required to disclose anti-takeover measures. The common approach regarding anti-takeover measures in Japan is an advance warning-type rights plan introduced in a normal phase (i.e., when the target is not aware of an acquisition plan or proposal or commencement of an acquisition by any bidder) (the "Advance Warning Type Rights Plan") under which the target requests the bidder to provide sufficient information so that the target's board or shareholders may properly evaluate the contemplated offer before the target triggers the rights plan that would dilute the bidder's shareholding or otherwise frustrate the bidder's offer. However, after the introduction of the Corporate Governance Code, the number of listed companies introducing the Advance Warning Type Rights Plans has decreased. Shareholders (especially institutional shareholders) generally consider such plans to not be in their best interest, therefore making it difficult to secure their approval of such plans.

Since 2020, we have seen a number of cases in which the target has introduced a rights plan in an emergent phase (i.e., after the target becomes aware of an acquisition plan or proposal or commencement of an acquisition by an unsolicited bidder) (the "Emergent Phase Rights Plan") with a view to defend against a hostile offer by a specific unsolicited bidder. Please see 6.4 for more details on common anti-takeover defense mechanisms in Japan.

If the target has introduced anti-takeover measures (including the Advance Warning Type Rights Plan), the bidder should carefully review such measures and plan in advance before approaching the target or commencing a tender offer. Even if the target has not introduced an Advance Warning Type Rights Plan, a bidder that is contemplating a hostile offer should bear in mind the possibility of the target introducing the Emergent Phase Rights Plan.

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