The Impact of Triangular Mergers on Japanese M&A
The introduction this month of triangular mergers (see our recent post) is causing much debate on the law's possible impact. Some salient points:
(1) According to the EU, the level of cross-border mergers in Japan compared with that of the EU and the US is minuscule. The value of cross-border mergers (sales) in Japan amounted to US$2,512 million in 2005, while it was US$429,146 million in the EU and US$105,560 million in the US. The value of cross-border mergers in the EU is thus 170 times higher, and in the US 42 times higher than in Japan.
(2) As reported by the WSJ (subscription may be required), the law is unlikely to increase hostile mergers, since a two-thirds majority of shareholders must approve, as well as the board of directors.
According to the JT, "Japanese businesses fear that a hostile takeover would be possible if a foreign company launches a public tender offer to acquire a majority share in a targeted Japanese firm, then installs sympathetic members on the board. If the foreign business can purchase more than two-thirds of the voting rights, carrying out a triangular merger will be possible. However, considering how much cash would be required to pull off a takeover in this fashion, many M&A experts question whether such a tactic will be popular."
(3) For the merger to be tax-free, the foreign subsidiary must have an actual, physical presence in Japan, including office and staff. Thus entities that have been established just to meet the merger are unacceptable.
(4) Some Japanese columnists such as Nobuo Sayama of advisory firm GCA point out that Japanese companies have much smaller market capitalizations than their US and European counterparts, which is why company managements are so afraid of being gobbled up by them.
(5) Interestingly, though, Sayama and others believe that the new law easing triangular mergers won't necessarily have that much impact. Rather, it will be one more factor in an environment that overall will tend to increase M&A activity in Japan.
The introduction this month of triangular mergers (see our recent post) is causing much debate on the law's possible impact. Some salient points:
(1) According to the EU, the level of cross-border mergers in Japan compared with that of the EU and the US is minuscule. The value of cross-border mergers (sales) in Japan amounted to US$2,512 million in 2005, while it was US$429,146 million in the EU and US$105,560 million in the US. The value of cross-border mergers in the EU is thus 170 times higher, and in the US 42 times higher than in Japan.
(2) As reported by the WSJ (subscription may be required), the law is unlikely to increase hostile mergers, since a two-thirds majority of shareholders must approve, as well as the board of directors.
According to the JT, "Japanese businesses fear that a hostile takeover would be possible if a foreign company launches a public tender offer to acquire a majority share in a targeted Japanese firm, then installs sympathetic members on the board. If the foreign business can purchase more than two-thirds of the voting rights, carrying out a triangular merger will be possible. However, considering how much cash would be required to pull off a takeover in this fashion, many M&A experts question whether such a tactic will be popular."
(3) For the merger to be tax-free, the foreign subsidiary must have an actual, physical presence in Japan, including office and staff. Thus entities that have been established just to meet the merger are unacceptable.
(4) Some Japanese columnists such as Nobuo Sayama of advisory firm GCA point out that Japanese companies have much smaller market capitalizations than their US and European counterparts, which is why company managements are so afraid of being gobbled up by them.
(5) Interestingly, though, Sayama and others believe that the new law easing triangular mergers won't necessarily have that much impact. Rather, it will be one more factor in an environment that overall will tend to increase M&A activity in Japan.
posted by Bob at 9:37 AM
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