The most popular new form of takeover defense in Japan is the so-called advance warning plan. It looks very reasonable and proponents claim it will increase value for shareholders by protecting their interests. In fact, the motivation for many of the plans is killing deals while avoiding director liability. And many of them are carefully designed to entrench any potential mergers, most likely decreasing shareholder value rather than increasing it.
At the end of June 2006 most Japanese companies will hold their annual general meetings. At those meetings many companies will announce advance warning plans or ask shareholders to approve them. It is crucial, therefore, that shareholders be aware of the way these takeover defenses work and their potential implications. To illustrate both of these, here is a fictional story describing how one type of advance warning plan could work in practice.
The story
It was the year 2012. President Kanda...