6 Asian Legal Business | December 2024 Is the takeover battle of Fuji Soft rewriting the M&A rulebook in Japan? Japan has been navigating a slew of market changes in recent years as the country’s corporate reforms move ahead with full steam. While the dearth of M&A persists in other major Asia hubs, Japan’s historically conservative dealmaking sphere is witnessing a boom in activity. This evolving picture has presented a golden window for international private equity firms to swoop in and stake their claims in Japanese corporations. The recent clash between KKR and Bain Capital over a $4 billion buyout offer for software developer Fuji Soft has highlighted a significant shift in Japan’s corporate takeover landscape under ongoing corporate reforms and moving market conditions. 1 What potential vulnerabilities have been revealed? For over a year, global PE titans KKR and Bain Capital have been engaged in what was described as an “allout bidding war” to gain control of Fuji Soft, the Japanese software company long pressed by its largest shareholder to go private. In the latest development, Fuji Soft approved KKR’s proposal of 9,451 yen ($63) a share – 1 yen higher than Bain’s offer and decisively influenced by two activist shareholders. Previously, Fuji Soft’s board had been maintaining its backing for KKR’s long-standing bid of 8,800 yen, or $59, a share, even after Bain countered with a higher offer. Bankers and investors are poring over the case for novel takeover templates, while lawyers noted new strategies that are challenging long-held norms in Japan’s legal offerings in corporate finance legal market. Makiko Ushijima, of counsel at Jones Day’s Tokyo office, notes that one of the “biggest fears” in the Japanese boardroom is realising Japan’s relatively low threshold for squeeze-outs compared to other jurisdictions, including Europe. “Even though the acquirer is unlikely to obtain 90 per cent at the end of the tender period, there is another statutory venue to squeeze out minority shareholders entirely,” says Ushijima. The Companies Act of Japan provides a de-facto squeeze-out process through share consolidation or mandatory call options, which a two-thirds shareholder vote can approve. This mechanism, originally not intended for squeezeouts, has now become a powerful tool for acquirers. Ushijima believes Japanese companies are now running higher risks of becoming targets of full takeovers. As a result, potential acquirers may now focus more on reaching this crucial one-third mark early in their takeover attempts. 2Is it simply a bidding war on price? While the battle for Fuji Soft might appear to represent a “straight bidding war,” it reveals a more nuanced shift in Japan’s M&A dynamics, according to Ushijima. Japan’s Corporate Takeover Guidelines issued by METI in August 2023 emphasise that offer price is particularly important for boards to consider in full, cash-based takeovers. However, the Fuji Soft case demonstrates that in partial takeovers, price may not be the decisive factor “as long as one bidder secures one-thirds of shareholder votes at the outset” and occupies de-facto blocking position. “Even though another bidder offers a better price, the board may not agree to a ‘partial’ takeover, and the price is not necessarily a decisive factor in bidding war,” says Ushijima. “The focus would be shifted to tactful strategy to secure such threshold with certainty.” Further, the alliance between KKR and an activist shareholder has also caught the attention of private equity firms operating in Japan. In August, KKR announced a tender offer to take Fuji Soft private after securing a deal with Singapore-based 3D Investment Partners. This partnership represents a departure from the traditional market-check auctions typically conducted by target companies themselves. 3What risks do foreign investors face? For foreign investors, lawyers note that the Fuji Soft case has highlighted some of the complexities and potential lack of clarity in Japan’s takeover processes. For instance, the use of multiple pre-tender offer announcements, which are common in Japan but outside the statutory tender offer process, can be confusing for international investors unfamiliar with local practices, according to Ushijima. This lack of clarity extends to understanding when and how target company boards are required to respond to takeover attempts, and when shareholders can make informed choices between competing bidders. As such, “Foreign investors might have a difficult time fully understanding the decision-making process of the board in a timely manner. While the Financial Services Agency issued the Disclosure Guideline for Takeover in October 2024, which in part addressed this pre-TOB announcement, we expect further clarities on this issue in the near future,” says Ushijima. The Briefs EXPLAINER
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