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

4.1 Mandatory tender offer requirement

The general Japanese regulatory approach relating to tender offers is that they are required only where:

1. the target is a company obligated to file annual securities reports under the FIEA; and
2. the bid falls into one of the circumstances described below.

Since all Japanese listed companies are obligated to file annual securities reports, it is important that if a person intends to obtain control of a listed company by purchasing shares in such company, they need to consider whether the Tender Offer Rules will apply. Where the requirements are met, the bidder is required to launch a tender offer to all shareholders at the same price.

In general, if a bidder intends to purchase shares and such other equity types of securities, e.g., share options (shinkabu yoyakuken) and bonds with share options, of the target in the following circumstances, such purchases may only be made through a tender offer in compliance with the Tender Offer Rules:

1. The bidder proposes to purchase shares in excess of 5% of the total number of voting rights of the target from more than 10 shareholders in the 61-day Aggregation Period through off-market trading.
2. The bidder proposes to purchase shares with the result that the bidder will hold shares in excess of one-third of the total number of voting rights of the target, irrespective of the number of shareholders involved through off-market trading and/or on-market non-auction trading.
3. The bidder proposes to purchase shares, within a three-month time frame, of (i) 10% or more of the total number of voting rights of the target in aggregate through any or, a combination of, off- market trading, on-market trading and/or subscription of new shares and (ii) at least 5% (of the total number of voting rights of the target) of such share purchase is via off-market trading and/or on-market non-auction trading, with the result that the bidder holds shares in excess of one-third of the total number of voting rights of the target.
4. The bidder already holds more than one-third of the total number of voting rights of the target and wishes to purchase further shares in excess of 5% of the total number of voting rights in the target through on-market auction trading after the launch of a tender offer by a third party. For the avoidance of doubt, although the FIEA does not specify the type of trading for the purchase of further shares in circumstance (d), any purchase through off-market trading and/or on-market non- auction trading (whether in excess of 5% or not) by a bidder who already holds more than one-third of the total number of voting rights in the target shall always simultaneously trigger the above circumstance (b), and as such, circumstance (d) is considered to target only on-market auction trading.

In addition, if the bidder seeks to acquire shares with the result that the bidder will hold two-thirds or more of the total number of voting rights, the bidder will be required to make the offer to purchase to all shareholders and purchase all tendered shares from all offerees.

Under the Tender Offer Rules, any shares in the target owned by "Persons in a Special Relationship" with the bidder must be aggregated with the shares acquired by the bidder in the target for purposes of the foregoing tender offer thresholds. "Persons in a Special Relationship" include the following:

1. where the bidder is an individual, persons having a special relationship are: (i) that person's relatives (that is, that person's spouse, relative by blood and relatives by marriage to the first degree of kinship ("Relatives")) and (ii) corporations (and their directors and officers) in which the individual owns 20% or more of the total number of voting rights, together with the individual's Relatives;
2. where the bidder is a corporation, persons having a special relationship are: (i) the bidder 's directors and officers; (ii) corporations (and their directors and officers) in respect of which 20% or more of the shares are owned by the bidder (including the shares owned by any subsidiary corporation, i.e., a corporation in which the bidder owns more than 50% of the total number of voting rights) and (iii) individuals of corporations (and their directors and officers) who own 20% or more of the total number of voting rights of the bidder (including the shares owned by any subsidiary of such corporations); and
3. persons who enter into an agreement with the bidder to jointly acquire or transfer shares, or exercise rights, such as voting rights, to which they are entitled as shareholders, or who enter into an agreement to transfer or acquire such shares to or from each other after purchasing the company's shares.

4.2 Purchases excluded from the application of the tender offer requirement

In general, purchases made on the Financial Instruments Exchange Markets are exempted from the Tender Offer Rules (subject to certain limited exceptions mentioned in 4.1(b) and (c) above). In addition, purchases of shares in the following circumstances are excluded from the operation of the Tender Offer Rules:

1. Exercise of share options and others – Purchases made by the exercise of share options, exercise of rights to allot shares, exercise of rights to subscribe to new shares granted in a rights issue and conversion of shares into another class of shares by shareholders are excluded.
2. Acquisition by parent – Purchases by the parent of the target from 10 or fewer shareholders during the 61-day Aggregation Period with the result that the parent will hold less than two-thirds of the total number of voting rights are excluded.
3. Transactions within a group – Purchases of shares from Persons in a Special Relationship or affiliated companies are excluded under certain conditions.
4. Consent by all shareholders – The Tender Offer Rules are not applicable if the total number of shareholders is less than 25 and all the shareholders agree in writing to the purchase of shares without conducting a tender offer. Please note, however, that if the ratio of shareholding after the purchases with such consent will result in two-thirds or more, such purchases are only exempt when either (i) the approval of the meeting of the holders of the classes of shares or (ii) the written consent of all holders of the class of shares (only if the number of such holders is less than 25) is obtained for all classes of shares other than the class of shares to be acquired.
5. Others – Acquisition of shares by enforcing a security interest in respect of the shares, acquisition through merger, share swap, corporate split or acquisition of all or part of a business are all not subject to the Tender Offer Rules. In addition, certain types of periodic acquisitions by officer shareholding or employee shareholding associations that fulfil certain preconditions, as well as some other acquisitions under exceptional situations, are also exempted.

4.3 Purchase price

The purchase price under a tender offer must be the same for all shareholders. However, it is possible to structure the offer to give shareholders a choice of two or more different payment alternatives, e.g., cash or securities. Under the Tender Offer Rules, other than cash, consideration may also take the form of shares and other securities. However, in Japan, it is most common for the bidder to use cash as the form of consideration. Each type of payment structure must be the same for all of the offeree shareholders.

There is no legal rule in relation to the price level in Japan, but the common valuation process is as follows:

1. The bidder performs its valuation of the target and provides for the rationale behind the determination of such offer price in the tender offer registration statement.
2. The target obtains its own valuation from an independent third party appraiser to examine whether the price offered by the bidder is fair and reasonable. The target's position statement will contain the directors' recommendation as to whether or not the target's shareholders should tender their shares in the tender offer.

4.4 Minimum and maximum acceptance condition

The offer may be subject to a minimum acceptance condition if the condition is explicitly included in the tender offer registration statement in advance. If the minimum acceptance condition is satisfied, the bidder will be bound to purchase the number of specified shares at the very least. If the tender offer is under-subscribed, the bidder, by virtue of having attached the condition to the offer, may withdraw the bid. The offer may also be subject to a maximum acceptance condition if the condition is included in the tender offer registration statement in advance. The bidder, however, is not permitted to include a maximum acceptance condition if, after the acquisition, it intends to hold two-thirds or more of the target's voting shares. If the bidder receives acceptances in excess of the amount stipulated in the maximum acceptance condition, the bidder will be permitted to refuse to acquire the excess shares on a pro-rata basis.

4.5 Amending purchase conditions

Although the bidder is, as a rule, free to amend its purchase conditions, it may not make amendments to certain conditions that are clearly detrimental to the offerees, such as reducing the purchase price, reducing the projected number of shares to be purchased or shortening the tender offer period, except where the target implements certain anti-takeover defenses.

4.6 Prohibition on independent purchase by the bidder

Subject to certain limited exceptions, the bidder and any Persons in a Special Relationship must not purchase shares in the target other than through a tender offer during the tender offer period.

4.7 Withdrawal of a tender offer

Under the Tender Offer Rules, a bidder's withdrawal of a tender offer is strictly restricted. A bidder may withdraw the tender offer only upon the occurrence of any of the following:

1. certain corporate decisions, such as merger, sale of substantial assets, dissolution, bankruptcy and exercise of the anti-takeover defense made by the target or its subsidiary (being limited to decisions announced on or after the day of the public notice of commencing a tender offer);
2. corporate decisions to maintain the anti-takeover defense made by the target;
3. the occurrence of certain material events in relation to the target, such as bankruptcy, the filing for an injunction order seeking the cessation of the target's business, an administrative order to cease the operation of the business, the termination of the business relationship with a major customer, damage sustained from a disaster, the commencement of litigation, or the delisting of shares (being limited to events that occurred on or after the day of the public notice of commencing a tender offer);
4. if any governmental permit necessary for the acquisition of the shares in the target specified in the tender offer registration statement has not been granted before the last day of the tender offer period;
5. any events provided under the Tender Offer Ordinance which are deemed to be equivalent to items of (a) through (d) above; or
6. any major changes to the situation of the bidder, such as its bankruptcy.

On the other hand, an offeree may cancel its agreement to sell shares in connection with a tender offer at any time during the tender offer period. Furthermore, the bidder cannot claim compensatory or punitive damages as a result of the cancellation of the agreement by an offering shareholder, and the bidder will be liable for the cost of returning to the offeree any shares delivered to the custody of a securities company or a bank.