The ownership battle over Nippon Broadcasting System Inc
(NBS) has ignited discussions about Japanese M&A rules.
In January 2005, Fuji Television Network Inc (Fuji TV)
announced a friendly tender offer to acquire more than 50% of
NBS under the takeover bid (TOB) rules of the Securities and
Exchange Law (SEL). In the following month, Livedoor Co Ltd
announced it had acquired a 35% stake in NBS by purchasing
about 30% of NBS's shares in off-hour trading on the Tokyo
Stock Exchange. Livedoor funded the share purchase with a loan
from Lehman Brothers, which is to be repaid using the proceeds
received from Livedoor's ¥80 billion ($760 million)
issuance of moving strike convertible bonds to Lehman Brothers.
In response to Livedoor's actions, NBS passed a resolution to
issue stock acquisition rights (stock options) to Fuji TV
which, when fully exercised, would give Fuji TV control of NBS.
This action by NBS was taken as Fuji TV was prohibited under
the SEL from purchasing NBS shares in the open market during
the TOB period. Livedoor applied for, and was granted, a
temporary injunction by the Tokyo District Court barring NBS's
rights issue. As of the time of writing, an appeal of the
decision was pending at the Tokyo High Court.
The NBS case has dominated Japanese news over the past two
months and is expected to lead to amendments to the SEL and the
new Company Law, the latter of which is expected to come into
effect in 2006. The SEL provides that any person who acquires
more than one-third of the outstanding shares of a listed
company outside of the "securities market" of a securities
exchange must comply with the TOB rules. There is uncertainty
regarding the meaning of this provision and especially the term
"securities market". Based on one possible interpretation of
this term, a person could acquire any number of shares of a
listed company in off-hour trading without having to comply
with the TOB rules. The Diet is considering amending the SEL to
provide that any person who is intending to acquire more than
one-third of the outstanding shares of a listed company in
off-hour trading must comply with the TOB rules and treat
existing shareholders equally.
As a result of the NBS case, the Cabinet has decided to
postpone for one year the implementation of certain M&A
related provisions of the new Company Law. The Company Law
seeks to facilitate mergers and acquisitions by introducing
more progressive rules, such as rules permitting cash-out and
triangle mergers. The postponement will provide Japanese
companies with enough time to adopt defensive measures to help
prepare for potential hostile takeovers.