Author: | Published: 1 Jun 2005
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Nagashima Ohno & Tsunematsu


JP Tower, 2-7-2 Marunouchi
Chiyoda-ku, Tokyo 100-7036


+81 3 6889 7000


+81 3 6889 8000 Visit Website

In the wake of the hostile takeover of Nippon Broadcasting System by Livedoor, many Japanese companies are starting to adopt defensive measures to ward off unwanted suitors.

NIRECO Corporation implemented an aggressive measure of granting rights to existing shareholders. However, market participants criticized the company, arguing future shareholders would not receive any such rights and would be seriously diluted when the rights are exercised. In response to this criticism, another company, eAccess, issued rights under a structured trust arrangement, where the rights would be issued to a trustee who would hold them in trust until it transfers the rights to current shareholders at the time of a hostile bid.

Other companies, such as Matsushita Electric Industrial and Toshiba Corporation, have implemented a new scheme of defensive measures. Under the scheme, company management requires any person intending to make a large purchase of shares to provide enough information and time to management for it to properly inform its shareholders on the potential purchase. If a purchaser does not follow these procedures, management may implement defensive countermeasures, such as issuing new shares or rights to existing shareholders or third parties. NEC Corporation and other companies are going to take less aggressive defensive measures, such as reducing the maximum number of directors, whereby making it more difficult for acquirers to appoint a majority of directors, and increasing authorized capital to prepare for a potential rights issuance.

The Tokyo Stock Exchange has issued a guideline for listed companies to restrict the implementation of defensive measures that adversely effect shareholders' interests. The guideline will probably be incorporated in the TSE listing rules. The Ministry of Economy, Trade and Industry and the Ministry of Justice are also expected to issue a joint guideline. The guideline will prescribe procedures and substantive rules for implementing defensive takeover measures. However, because the new Company Law is not expected to come into effect until April 2006, many other Japanese companies have decided to wait before adopting defensive takeover strategies.