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Daido Steel, the listed special steel maker, welcomed Japan’s move to erect a barrier against foreign acquisitions of domestic companies that have weapons systems technology, a Daido spokesperson said.
The Ministry of Economy, Trade and Industry (METI) will impose tougher controls, effective 28 September, on foreign acquisitions of more than 10% of domestic companies with technology that could be used in weapons systems.
Under the revised rules, the METI amended the scope of regulated transactions to include businesses conducted by consolidated subsidiaries and advance notification requirements by manufacturers of export control items, such as advanced materials, machine tools and carbon fiber, in addition to the previous list of companies subject to advance notification.
An METI spokesperson said the rule change, which marks the first overhaul of Japan’s inward investment regulations under the Foreign Exchange and Foreign Trade Law in 16 years, comes in light of the recent expansion of cross-border investment activities and changes in the national security environment, such as the proliferation of weapons of mass destruction and increases in the number of cases involving the diversion of cutting-edge commercial technologies to military use.
The ministry has set a target to double Japan’s inward investment activities in the next five years, according to the spokesperson. “To double such investment activities, we must be able to spot a few ‘bad’ ones, such as the Chinese oil company’s takeover attempt [of Unocal in the US],” the METI spokesperson said. “We are simply trying to catch up with the rest of the world, although our rules are not as powerful as the one implemented in the US [where the President can veto any deal that is perceived to threaten ‘national security’ under the Exxon-Florio Provision],” the spokesperson said.
These are not isolated cases. Earlier, the rumour about a takeover by Pepsico of Danone, the French dairy company, prompted France to revise its rules in 2005, while Germany revised the similar rule in 2004, following Babcock’s attempt to sell its HDW shares to overseas companies, the ministry said.
The revised rules, meanwhile, are a boon to many Japanese companies, such as Daido Steel, which has advanced titanium alloy technology, and Teijin, which recently acquired Toho Tenax, the world’s major producer of carbon fiber.
“I think the revised rule is clearly a plus to our business and will set a hurdle for hostile foreign bidders,” said the Daido spokesperson. “With the new advanced notification requirement, we could save a bit of time to think about our countermeasures.”
Daido Steel is a major producer of titanium alloy, accounting for about 40% of the domestic market. Last year, Daido made the request to Suzuki Motor, Toyota Motor, Fuji Heavy Industries and Honda to take a combined stake of 10% in an attempt to ward off possible hostile takeover bids. At the end of March 2007, Nippon Steel held a 10.2% stake in Daido, followed by Honda with 3%. The company introduced its anti-takeover measure in May. The Daido spokesperson said it has made a request to Suzuki, but denied that it made the same request to Toyota and Fuji Heavy Industries, admitting the company still feels vulnerable.
Asked whether the rule revision was initiated by the Keidanren, Japan’s most powerful business lobby, the METI official said the Keidanren came up with idea after the group found out the ministry had already been working on the revision. The Keidanren was adamantly opposed to Japan’s recent legal changes in May that has made it easier for foreign companies to acquire Japanese businesses through share exchanges instead of cash offers.
“This is not protectionism,” the METI spokesperson said. “Honestly speaking, we want to keep carbon fiber in Japan. But international standards allow us to regulate the product only from the standpoint of national security.” Daido has a market capitalization of JPY 406.2bn (USD 3.5bn).
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