This article was written as of January 2024.

On August 31, 2023, the Ministry of Economy, Trade and Industry (“METI”) published its “Guidelines for Corporate Takeovers (Enhancing Corporate Value and Securing Shareholders’ Interests)” (“Takeover Guidelines”) . In November 2022, METI launched the “Fair Acquisition Study Group” in order to improve predictability and present best practices both for parties involved in acquisitions and for capital market participants. The Takeover Guidelines were compiled through discussions at this Study Group.

The Takeover Guidelines primarily provide a new code of conduct for directors and other parties involved in the acquisition of corporate control of a listed company, and also summarize issues related to takeover response policies and countermeasures (the “Takeover Response Policies and Countermeasures”)1, including those adopted after an acquiring party appears, in light of recent court cases. It is expected to have a significant impact on Japanese M&A practice in the future.

1In the Takeover Guidelines, takeover defense measures are referred to as “takeover response policies” or simply “response policies”.

The table of contents of the Takeover Guidelines is as follows.

1. Chapter 1 (Introduction)

In Chapter 1, the position and the scope of the Takeover Guideline are described. It should be noted that the Takeover Guidelines are intended to present best practices as soft law, and not to be legally binding or punitive in any way. Nevertheless, in practice, it is expected to have an important impact not only as a code of conduct during the acquisition phase, but also as a guideline for interpretation before the courts, etc.

2. Chapter 2 (Principles and Basic Perspectives)

Chapter 2 presents the following three principles that should be respected in acquisitions of corporate control of listed companies in general:

• Principle 1: Principle of Corporate Value and Shareholders’ Common Interests
• Principle 2: Principle of Shareholders’ Intent
• Principle 3: Principle of Transparency

As basic perspectives, the Takeover Guidelines emphasizes that when the board of directors decides on a direction toward reaching agreement of an acquisition, the target company directors should act with reasonable effort to ensure that the acquisition will be carried out on terms that will secure the interests which are due shareholders, in addition to determining whether the acquisition is appropriate from the perspective of enhancing the company’s corporate value. It further points out that, in principle, the rational intent of shareholders should be relied upon in matters involving the corporate control of a company, but that sufficient information must be provided so that the shareholders can make the correct decision regarding the merits of the acquisition and the transaction terms.

3. Chapter 3 (Code of Conduct for Directors and Board of Directors regarding Acquisition Proposals)

Chapter 3 organizes the code of conduct for each director and the board of directors regarding acquisition proposals to acquire corporate control, on a phase basis, such as when an acquisition proposal is received and when the board of directors decides on a direction toward reaching agreement of an acquisition. Appendix 1 presents a summary of basic perspectives that should be considered and discussed with respect to the acquisition proposal. Chapter 3 also describes the role and function of the special committees to ensure fairness in transactions.

4. Chapter 4 (Increased Transparency Regarding Acquisitions)

In Chapter 4, ways to improve transparency regarding acquisitions are summarized from the perspective of both the acquiring party and the target company. In particular, it is noteworthy that specific guidelines are provided as best practices for how information should be disclosed by both the acquiring party and the target company, taking in consideration various circumstances that may go beyond the disclosure requirements under the Financial Instruments and Exchange Act and by financial instruments exchanges. It also lists actions that are not advisable as distorting shareholder decision-making.
It should be noted that the tender offer regulations, the large shareholding reporting regulations, as well as the regime for identifying beneficial shareholders, are currently being discussed by the “Working Group on Tender Offer Rule and Large Shareholding Reporting Rule of the Financial System Council” of the Financial Services Agency, and the relevant parts of the Takeover Guidelines may be revised in the future according to the outcome of the discussions there.

5. Chapter 5 (Takeover Response Policies and Countermeasures)

Chapter 5 and Appendix 3 present guidelines outlining the Takeover Response Policies and Countermeasures against acquisitions from the perspectives of respecting shareholders' intent, ensuring necessity and proportionality, prior disclosure, and dialogue with the capital market. In addition to the Takeover Response Policies and Countermeasures adopted during the normal phase, the Takeover Guidelines also touch on the Takeover Response Policies and Countermeasures adopted for the period following the appearance of an acquiring party, and organize them in light of a series of recent court cases.