Tender Offer Regulations
The FIE Law provides certain requirements specific to tender offers as well as disclosure requirements relevant to tender offers, acquisition and holding of block shares, and business combinations. It also provides for insider trading regulations, which are important in practice but are not covered by this chapter.
Under the FIE Law, a tender offer is mandatory for a purchase or purchases of shares of publicly traded companies (or other companies that are otherwise subject to continuous disclosure requirements under the FIE Law), provided that such purchase meets certain criteria and does not fall under any of the statutory exemptions. Without going into the complex details of each of such criteria and exemptions as provided under the FIE Law and pertinent regulations, a mandatory tender offer is typically required if any of the following criteria is met:
- as a result of purchases from more than 10 sellers via off-market transactions within a period of 61 days or less, the ‘percentage ownership’ of the purchaser (ie, percentage of voting rights held by the purchaser and certain associated persons) in the target company will exceed 5 per cent;
- as a result of purchases from any number of sellers via off-market transactions or certain trade sale-type market transactions, the percentage ownership of the purchaser in the target company will exceed one-third; or
- as a result of a combination of (i) off-market transactions or certain trade sale-type market transactions involving shares in the target company representing 5 per cent of the total voting rights, and (ii) other acquisitions of shares (including subscription of newly issued shares), to be implemented within a three-month period from each other, the voting rights of the purchaser in the target company will increase by more than 10 per cent, and the percentage ownership of the purchaser will exceed one-third of the total voting rights.
Detailed rules are provided in the FIE Law for the purpose of determining the ‘percentage ownership’ of the purchaser, wherein the shares owned by ‘special associated persons’ as statutorily defined - such as subsidiaries and any third party who has entered into a voting agreement with the purchaser - are aggregated with shares directly held by the purchaser. The purchaser is generally allowed to set a cap on the percentage of shares that it will acquire as a result of the tender offer (which means that if the number of shares tendered exceeds the cap, the tendered shares will be purchased on a pro-rata basis); however, if the purchaser intends to purchase shares representing two-thirds or more of the total voting rights of the target company, it is required to purchase all the shares tendered (ie, no cap is allowed).
It is also worth noting that it is not permissible to close an off-market purchase that triggers the above-mentioned criteria and then launch a subsequent tender offer; instead, the acquirer must implement the first off-market purchase through a tender offer in such case.
Where a tender offer is required, the purchaser (ie, the offeror) must, at the time of commencing the tender offer, file a tender offer registration statement with the local financial bureau and make a public announcement, both in accordance with the applicable disclosure requirements under the FIE Law. Information to be disclosed includes the purchase price, the tender offer period (from 20 to 60 business days), conditions to the tender offer, the outline of the business plan after the completion of the tender offer, the general information of the purchaser, etc, and the sources of the funds to finance the tender offer. The target company is also required to file a report on its opinion on the tender offer in response to a tender offer.
Filings for issuance of shares
The FIE Law requires public companies to file a securities registration statement or a shelf registration statement in order to implement a primary or secondary offering of its shares in Japan. Therefore, such filing is required to implement a third-party allotment except where no offering activity takes place in Japan.
Also, in the improbable scenario that the securities to be distributed as consideration for a merger, share exchange or share transfer are not subject to disclosure requirements under the FIE Law, the FIE Law requires prior submission of a securities registration statement if the target company in a merger, share exchange or share transfer transaction is a listed company.
Other disclosure regulations
Apart from the regulations discussed above, the FIE Law also provides for other disclosure requirements. If a party acquires more than 5 per cent of the shares of a publicly traded company (namely, a company listed on a stock exchange or registered for trading over the counter), such party is required to file a large shareholding report within five business days of the acquisition. An increase or decrease of 1 per cent or more in the shareholding ratio of the purchaser will trigger an obligation to file an amendment report (see question 6). Further, the FIE Law requires filing of an extraordinary report in the event, inter alia, a listed company or any other company subject to continuous disclosure requirements under the FIE Law (which may be the acquiring company or the target company) decides to:
- implement a merger, share exchange or share transfer;
- engage in, or upon the occurrence of, an event that results in a change in its parent company or major shareholder with 10 per cent or more voting rights, or its major subsidiary that meets certain quantitative thresholds; or
- acquire a subsidiary for a consideration (including fees and expenses pertaining to such acquisition) exceeding a threshold amount determined based on the purchasing company’s net asset.
Disclosure requirements under the rules of the Tokyo Stock Exchange also require timely disclosure (ie, a press release) in each of such situations.
Under the Anti-monopoly Law, subject to certain exceptions, if a company acquires shares (including by share purchase or by share exchange) in another Japanese or foreign company which, together with its subsidiaries, meets a certain amount of sales in Japan, and after the acquisition, the percentage ownership of the company crosses the voting right threshold of 20 per cent or 50 per cent, such company must file a prior notification with the Japan Fair Trade Commission (JFTC).
Further, under the Anti-monopoly Law, subject to certain threshold requirements and exceptions, a company implementing a merger or companies jointly implementing a share transfer must file a prior notification of such transaction with the JFTC.
If a filing is required, there is a 30-day waiting period (which may be terminated earlier by discretion of the JFTC upon petition by the filing party).
Under the FEFT Law, a foreign investor may be required to file either a prior notification or an ex post facto report with the competent ministers through the Bank of Japan when it acquires shares of a Japanese company (see question 15). In the event a prior notification is required, there is a 30-day waiting period (which is normally terminated within two-weeks or less after receipt of such notification, but could be extended to up to five months if the competent ministers deems necessary to investigate the notified transaction).
Stamp duty and other governmental fees
No stamp duty or other governmental fee is imposed on a share acquisition agreement, share exchange agreement, or share transfer plan. A stamp duty of ¥40,000 is imposed on a merger agreement. A business combination often involves amendments to the company’s commercial registration, which are subject to various registration taxes, the amounts of which depend on the matters affected. For example, when new shares (as opposed to treasury shares) are issued by the target company in a third party allotment, amendment to the commercial registration to reflect the incidental increase in its stated capital will require a registration tax of an amount equivalent to 0.7 per cent of the increase in the amount of stated capital. There are no governmental fees charged for a tender offer; however, note that a substantial amount of fees are charged by the tender offer agent (typically an investment bank), which is required to be engaged by the tender offeror under the FIE Law.
Back to top