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The United States urged Japan on Tuesday to make appropriate preparations, in terms of taxes and qualifying securities, for introducing easier conditions next May for facilitating mergers and acquisitions.

“The question of what kind of stock can be used, and most particularly, the question of tax exemption, is probably the two major issues that we are looking at along with several others,” said Michael Michalak, U.S. ambassador to the Asia-Pacific Economic Cooperation forum.

Michalak, of the State Department’s East Asian and Pacific Affairs Bureau, met with Japanese officials on investment during a bilateral working group meeting Monday in Tokyo after the APEC trade ministers’ meeting in Ho Chi Minh City last week.

Japan next May will introduce the M&A tactic known as a triangular merger, which allows a Japanese subsidiary of a foreign company to take over a Japanese firm by swapping some of the parent’s stock for all or a sizable portion of the target’s shares, without using any cash to fund the acquisition.

Japan was about to allow triangular mergers in March 2005 when the Liberal Democratic Party inexplicably scrapped talks on the issue shortly after Livedoor Co. challenged Fuji TV’s bid to take over Nippon Broadcasting System Inc.

Discussions on the tactic, expected to be useful in executing friendly takeovers, are expected to heat up toward the end of the year, according to Michalak and Japanese officials.

“The most important thing for American firms is the implementation of triangular mergers in a way that is used for friendly (mergers) and facilitates FDI (foreign direct investment) into Japan,” he said.

Referring to current debate in Japan on whether to limit the securities that can be used for triangular mergers to those listed on the Tokyo Stock Exchange, Michalak said, “We hope Japan will look at international practice and allow more broad selection of securities that can be used.

“Tax exemption is crucial because that would also kill any use of triangular mergers,” he added.

Michalak denied the new M&A scheme will lead to a surge in hostile takeovers by foreign firms in Japan.

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