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A study group of Japan’s Ministry of Economy, Trade and Industry (Meti) is looking to review its guidelines for anti-takeover measures, a Meti spokesperson told dealReporter.
At its more recent meeting, the spokesperson said the group has agreed that it was not necessary for a target company to make a cash compensation to a hostile acquirer and obtain a special majority for approval of anti-takeover measures.
The aim of the ministry’s Corporate Value Study Group (kigyo kachi kenkyukai) is to introduce a set of new guidelines for the introduction of anti-takeover measures based on lessons learned from Bull-Dog Sauce’s experiences, the spokesperson said.
Experts and investors believe the study group’s guidelines will set an important precedent for future poison pill-related trials in Japan. The spokesperson said the new guidelines are expected to be ready by late June 2008, when many Japanese companies have their respective AGMs.
In a controversial string of rulings this year, both the lower and higher courts of Tokyo as well as the Supreme Court rejected the injunction sought by Steel Partners against a poison pill defense measure implemented by Bull-Dog Sauce.
More than two thirds of Bull-Dog shareholders approved at its AGM in June the company’s defense system that gives shareholders three new share warrants each, diluting Steel Partners’ stake from more than 10% to less than 3%. The US fund will receive JPY 2.3bn (USD 18.6m) in cash.
Now the question for Meti’s study group is whether it is necessary to make cash compensation to a hostile acquirer in order to force the acquirer to withdraw from a takeover bid. Another focal point of the group is whether it is necessary to have a special majority of shareholder approval for the introduction of poison pills.
Kenichi Fujinawa, a lawyer at Nagashima Ohno & Tsunematsu, told the group that the objective of anti-takeover measures is whether it is able to stop a takeover bid or not. “An anti-takeover measure therefore should be designed in such a way that a hostile acquirer gets hit by pursuing a takeover bid,” Fujinawa said. “However, if we compensate an abusive acquirer by cash, we are simply creating the best profit-making opportunity for the acquirer.”
Fujinawa believes Japan needs to amend its US-style tender-offer system. “The system is inadequate to keep abusive acquirers away,” Fujinawa said. For instance, under the current system, a bidder is not required to launch a mandatory tender offer until it acquires 33.33% of voting rights. Also, it is not required to buy all of the remaining shares of such a company until it buys two thirds of voting rights. However, Fujinawa urged the study group to create alternative tender-offer systems, which allow bidders to choose by changing the article of incorporation. “By changing the articles of incorporation, a company should be able to adopt alternative tender offers. For instance, a company should be able to lower the level of a mandatory offer to 20% from 33.33%,” Fujinawa said.
Kazuhiro Takei, a partner at law firm Nishimura & Asahi, also echoed Fujinawa’s view saying it is not necessary to compensate an acquirer with cash when triggering a poison pill. “We must make it legally clear that cash compensation is not necessary. Otherwise, we end up encouraging greenmailers,” he said.
Takei also denied the need for a special majority for shareholder approval. “We should not think that shareholder approval without a special majority lacks legal stability. Demanding a special majority for creating a Rights Plan is clearly excessive control,” Takei said.
Shortly after the Supreme Court’s decision on the Bull-Dog Sauce case, Meti Vice-Minister Takao Kitabatake expressed his concern that including a cash buyout for share warrants in a plan to be introduced before a suitor has launched a bid is problematic, adding that such a rule is not part of the recommendations laid out by the ministry for anti-takeover plans. If such a rule were permitted, he said, it would mean suitors could feel safe in launching takeover bids, knowing that a cash payment was waiting, and would invite greenmailer-type suitors to take advantage of the rule. The Meti spokesperson also expressed concern that the widespread use of a special majority resolution may encourage cross-shareholdings among Japanese companies. The spokesperson said the ministry will come up with a report by next spring. Bull-Dog Sauce has a market capitalization of JPY 18.839bn (USD 165m).
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