Hostile takeovers and ways to repel them are the hottest topics in Japan’s corporate boardrooms these days.
Internet firm Livedoor Co.’s success in gaining a majority stake in Nippon Broadcasting System Inc. — a step toward gaining control of Fuji Television Network Inc. — is making daily headlines and is a nightmare come true for many executives nationwide.
Some are scrambling to put in place poison-pill defenses against similar unsolicited attempts on their firms. The targeted firm, in such a case, usually would attempt to issue a large amount of new shares to dilute a bidder’s stake.
But do such tactics signal that Japan is trying to close its doors to upstart and foreign players?
Not necessarily, said Gregory Puff, a U.S. lawyer specializing in cross-border transactions, which have included acquisitions and sales of Japanese companies.
“A poison pill doesn’t prevent a takeover. It makes a takeover expensive unless it’s negotiated,” said Puff, a partner at O’Melveny & Myers LLP’s New York office.
If used correctly, such defenses force the bidder to negotiate and offer a deal that will enhance corporate value, he said.
“It is the first strategy Japanese companies need to consider” when facing a potential takeover, he said in a recent interview in Tokyo.
The poison pill is the tack Nippon Broadcasting is trying to take. The Tokyo District Court has issued an injunction against the radio broadcaster’s plan to issue a massive amount of share warrants to Fuji TV, siding with Livedoor.
More Japanese firms are seeking advice on poison pills and other corporate defenses against hostile takeovers than ever before, foreign investment bankers said. But most are hesitant about adopting a poison pill, because they are afraid of public embarrassment, if a court should rule against it, Puff said.
Poison pills are possible under current law. But to clarify their legality and allow flexibility, the Justice Ministry is planning to legislate defense measures, including poison pills.
In a Japanese legal journal published last spring, Puff gave a blueprint for a poison pill he argues is legal by law and practice.
“If you have a company adopt a poison pill, and it’s challenged and it survives, you can’t imagine the flood of companies adopting a poison pill immediately.”
Without waiting for new legislation, electronic control equipment manufacturer Nireco Corp. will soon introduce what it says will be the country’s first poison pill. On March 31, Nireco will issue free of charge to all shareholders two equity warrants for each share held. If a shareholder deemed unfriendly holds 20 percent or more of stock, other shareholders will be allowed to add one new share for each warrant by paying 1 yen.
The best defense, of course, is to have an active management with a plan, Puff said. It can be as simple as channeling cash sitting in a bank account into dividends, he said.
“If shareholders believe in your plan, that’s always better than a poison pill and anything else.”
While neither active management nor a poison pill will shut out new players, what may have that effect is the decision last week by lawmakers to postpone for at least a year legislation making it easier for foreign companies to use their stock to pay for mergers in Japan, Puff said.
That legislation would have made the Japanese M&A industry look like other M&A industries in the U.S. and in Europe, he said, adding, “And the benefits go both ways.”
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