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.