Latest rule-making and trends in take-private transactions involving listed companies in Japan

In 2025, Japan’s M&A market reached a total value of approximately $385.9 billion, a 33% increase from the previous year (see “Japan’s M&A boom gains pace as activist investors step up”, JPMorgan), and this trend is expected to continue.

One factor driving this growth is the presence of activist shareholders. According to the same source, the number of public campaigns by activists in Japan rose from 45 in 2024 to 85 in 2025 – an increase of approximately 90% in one year – making Japan the world’s second-most active market for activists after the US. As a result, many listed companies are being pressured to spin off non-core businesses, unwind parent-subsidiary listings, and reduce cross-shareholdings amid demands to improve capital efficiency.

Abundant capital inflows into buyout funds have also contributed to increased M&A activity involving both listed and unlisted companies. Even after an M&A deal for a listed company is announced, activist shareholders exert significant influence, such as by pressuring buyers to increase the purchase price or consider alternative options. Activist shareholders may also, as dissenting shareholders, initiate appraisal proceedings even after closing. Furthermore, unsolicited public offers for listed companies seem to be becoming common, as a body of case law regarding takeover defence measures has developed.

This article explains the latest rule-making (including soft law) regarding take-private transactions of listed companies – a trend expected to continue – and its impact on practice.

Soft law has played a significant role in shaping M&A practices in Japan. Alongside the Ministry of Justice, which oversees the Companies Act, and the Financial Services Agency, which oversees the Financial Instruments and Exchange Act, the Ministry of Economy, Trade and Industry (METI) actively publishes guidelines and other documents aimed at establishing fair rules for M&A from an economic policy perspective.

In take-private transactions of listed companies by the target company’s management or parent company, there is a structural conflict of interest and information asymmetry between the purchaser (such as management or the parent company) and general shareholders of the target company. To address these issues, the Fair M&A Guidelines, published by METI in 2019, list the following measures for the target company to ensure fairness in take-private transactions involving structural conflicts of interest:

1. Establishing an independent special committee;

2. Obtaining advice from independent legal counsel;

3. Obtaining a share valuation report from a third-party valuation firm;

4. Ensuring opportunities for potential competing acquisition proposals (including a passive market check);

5. Imposing a majority-of-minority condition; and

6. Enhancing information disclosure to general shareholders and improving process transparency.

Historically, in the wake of the first boom of management buyouts in Japan, METI first published the Guidelines on Management Buyouts (MBOs) for Enhancing Corporate Value and Ensuring Fair Procedures (the MBO Guidelines) in 2007, which outlined best practices for MBOs. However, given that structural conflicts of interest also exist in take-private transactions by parent companies, and taking into account the development of M&A practice since the MBO Guidelines were established, METI established the Fair M&A Guidelines in 2019 covering take-private transactions by parent companies.

It is the current market practice that the target company generally follows the Fair M&A Guidelines, while the adoption of items 4 and 5 varies depending on the strength of conflict of interest and other factors in each case. In this regard, it would be worthwhile to mention that a majority-of-minority condition is still not so common (and less common in take-private transactions by parent companies than MBOs). On the other hand, the establishment of a special committee is considered mandatory in practice.

The operation of a special committee is also critical in the price determination process in courts that may arise from the subsequent exercise of appraisal rights by shareholders, including activists.

Under the Companies Act of Japan, if shareholders exercise their appraisal rights and the target company is not able to reach an agreement with them with respect to the price, the court must determine whether the squeeze-out price (the consideration paid to the general shareholders being squeezed out that was determined by an agreement between the target company and the acquiror, such as the parent company of the target company) constitutes a ‘fair price’.

In this regard, the leading Japanese case law (Jupiter Telecom, Supreme Court, July 1 2016; 70 Saikō Saibansho Minji Hanreishū, 6, 1445) takes the position that, as long as the target company has implemented measures to prevent arbitrary decision-making and the transaction terms were determined through a fair process, the squeeze-out price should be respected. Therefore, it is crucial to operate a special committee so that no doubts arise regarding its fairness, while seeking advice from lawyers with practical expertise and keeping future litigation strategies in mind.

The listing rules of the Tokyo Stock Exchange also contain rather supplementary, but important, rules applicable to conflicted transactions involving listed companies as the target.

Under the regulations of the Tokyo Stock Exchange, the target company in a take-private transaction by its parent company or controlling shareholder has been required to obtain an “independent opinion that the transaction is not detrimental to minority shareholders” (typically, the opinion of a special committee).

In light of the trend of practice after the publication of the Fair M&A Guidelines, the Tokyo Stock Exchange’s regulations were amended in 2025, which expanded the scope of transactions requiring such opinion to include take-private transactions through MBOs or by “affiliated” companies (i.e., companies that do not control but have a certain significant influence over the target company, generally through ownership of 20% or more).

In addition, the content of timely disclosures required when the target company expresses its position for take-private transactions through MBOs or by affiliated companies has been expanded. In particular, it has been clarified that the following items must be disclosed as key assumptions for the discounted cash flow method that the target company uses:

• Specific figures for the financial projections used as the basis for the calculation;

• The source (preparer) of the financial projections used as the basis for the calculation;

• Whether the financial projections used as the basis for the calculation assume the execution of the transaction;

• If the financial projections used as the basis for the calculation anticipate a significant increase or decrease in profits, the factors behind such increase or decrease;

• The discount rate used; and

• The calculation method for terminal value, along with the specific figures for the parameters used in the calculation.

Since more detailed disclosure regarding the valuation is now required, it has become more important to work with experienced valuation firms and lawyers, taking into account the potential for future disputes, including those arising from the exercise of appraisal rights.

The Financial Instruments and Exchange Act and related regulations concerning tender offers were amended in 2024 and 2025, respectively, which took effect from May 1 2026. These amendments represent the first major overhaul of the tender offer regulations under the Financial Instruments and Exchange Act in 20 years.

The most significant amendment concerns the types of transactions subject to mandatory tender offer requirements. Although on-market transactions were typically not subject to mandatory tender offer requirements, following the amendment, a tender offer will generally be required when the buyer’s ownership immediately after the relevant purchase is above a certain threshold, even if the purchase is conducted through on-market transactions.

This amendment is intended to address the coercive nature of a significant stake accumulation in the market, which was considered problematic as a result of several attempted hostile takeovers. Also, the threshold for the mandatory tender offer is lowered from the ‘one-third rule’ to 30%, given the ratio of voting rights actually exercised at general shareholders' meetings of listed companies and the takeover regulations in foreign countries. These amendments are expected to have a significant impact on the structuring of public company M&A in Japan.

Concurrent with the rule-making described above, which generally intends to strengthen discipline on negotiated takeovers, Japan has seen a significant shift in the trend regarding unsolicited offers. Specifically, since around 2020, attempts at hostile takeovers, primarily by activists, have intensified.

Amid a growing body of significant judicial rulings regarding the implementation of poison pills in response to such attempts, there has been a strong recognition of the problem that the code of conduct for directors of companies receiving unsolicited offers is unclear.

In response, METI, following discussions within a study group composed of academics and M&A practitioners, formulated the Guidelines for Corporate Takeovers (the Corporate Takeover Guidelines) in 2023. While the content is wide-ranging, it is particularly noteworthy in the context of this article that the guidelines provide specific guidance on how the board of directors of the target company should respond to takeover proposals (including unsolicited offers).

The Corporate Takeover Guidelines appear to have had a significant impact on M&A practices, coinciding with a growing emphasis on shareholder interests in Japan as M&A practices have evolved. In particular, following the establishment of the Corporate Takeover Guidelines, even within ‘corporate Japan’ – where unsolicited offers had traditionally been viewed very negatively – companies began to make unsolicited offers (including counterproposals to publicly announced acquisition deals), and there have been cases where these offers were actually successful. For example, Dai-ichi Life Holdings submitted in December 2023 a competing tender offer against M3’s tender offer for Benefit One and ultimately succeeded in the acquisition after gaining Benefit One’s support.

Amid this shift in mindset, high-profile cases involving unsolicited offers by foreign companies have also emerged, such as the acquisition proposal by Alimentation Couche-Tard for Seven & i Holdings (which was ultimately withdrawn due to a lack of support from the target company) and the acquisition proposal by Yageo Corporation for Shibaura Electronics (which succeeded after gaining the target company’s support).

It should also be noted that underlying these trends is the fact that judicial rulings regarding the implementation of poison pills have made clear the courts’ stance of prioritising shareholders’ decision-making when ultimately determining the merits of a takeover. Consequently, the limitations of poison pills have become apparent: their use is effectively confined to ‘buying time’ to seek shareholder judgement in a fair manner – a form of use that, from the perspective of the target company’s management opposing the takeover, may not necessarily be described as particularly powerful.

On the other hand, there have recently been developments that could be interpreted as a review of the way the Corporate Takeover Guidelines are accepted in practice. In February 2026, METI announced the resumption of a study group that had previously discussed the Corporate Takeover Guidelines (the results of the review based on discussions in the resumed study group will be published later).

The discussion materials for this study group (which are publicly available) point out that the intent of the Corporate Takeover Guidelines may not be fully understood. Of particular note is the point where the documents state: “After thoroughly comparing and evaluating the content of the acquisition proposal and the measures for enhancing corporate value under the current management from a quantitative perspective, if the proposal that best contributes to corporate value does not align with the proposal that best serves shareholder interests, it is desirable to endorse the proposal that best contributes to corporate value, taking into account the perspective of enhancing corporate value, while fulfilling sufficient accountability.”

Although the tendency to prioritise shareholder interests is gradually strengthening in Japanese corporate society, it is worth noting that the above approach would materially differ from the so-called Revlon duty in the US. It is still not surprising that METI, which oversees Japan’s industrial policy, would use “corporate value” as a criterion for judgment.

In practice, if there are cases where due diligence based on corporate value is not conducted and approval is given too readily to the highest-priced acquisition proposal, one can understand the motivation to impose checks and balances on such behaviour. On the other hand, there is a risk that the guidelines could be exploited by the management of target companies to protect their own interests, potentially leading to a loss of investor confidence in Japan’s capital and M&A markets. Attention should be focused on what kind of message METI sends regarding these practices and how those practices will evolve in response.

Finally, a close eye must also be kept on future developments regarding the strengthening of foreign investment regulations (the Foreign Exchange and Foreign Trade Act, or FEFTA). As of this writing, a bill to amend the FEFTA has been submitted to the Diet. This bill includes provisions for the establishment of a Japanese version of the Committee on Foreign Investment in the United States and the addition of new review criteria for cases of indirect ownership, such as when another foreign investor acquires shares of a foreign company that holds voting rights in a Japanese firm.

Amid rising geopolitical risks, economic security is a key policy priority for the current administration, and attention must be paid not only to such institutional reforms but also to trends in review practices. In April 2026, the Japanese government issued a recommendation under the FEFTA to discontinue the contemplated take-private transaction for Makino Milling Machine by an Asian-based private equity fund, MBK Partners, due to a concern over Japan’s national security in light of the fact that Makino’s products are widely used by domestic manufacturers of defence equipment. This is the first case of a discontinuation recommendation since foreign investment control under the FEFTA was significantly strengthened in 2017.

With the expansion of Japan’s M&A market and the increase in unsolicited offers, legal risks in M&A have intensified, driven by various recent rule-making and heightened litigation risks, as well as by significant changes in Japanese capital and M&A markets. In this environment, the role of the big four – major law firms that lead the majority of transactions and exert significant influence on rule-making – is expected to become increasingly important.

The authors would like to thank Fumiya Kitsukawa and Rina Matsuyama, associates at Mori Hamada & Matsumoto, for their assistance in the preparation of this article.