22 Asian Legal Business | October 2024 M&A After decades of deflation and economic stagnation, Japan is staring at a fundamental shake-up to its corporate governance framework. This change has been rejuvenating investor confidence and making waves in the country’s once dormant dealmaking landscape. According to a JP Morgan report in August, Japan-related M&A has grown steadily since 2010 and is on track for another strong performance in 2024, set to outpace last year’s volumes. The volume of M&A linked to the country was up around 20 percent in the first half of the year compared to 2023 following the strong pace seen at the end of last year, the report showed. The surge in deal activities is seen to be closely linked to the favourable fundraising conditions in Japan. The Bank of Japan has been trying to revitalise the shrinking economy with ultra-loose monetary policies, in stark contrast to the tightening monetary cycles by central banks in the United States and Europe. Consequently, the low interest rate and rapid depreciation of the yen have captured the attention of foreign investors, who are battered by heftier funding costs overseas and hunting for cheaper deals. Even with a recent rate hike, the BoJ is keeping an accommodative stance on future rate decisions, with Japan’s new cabinet favouring a cautious approach when it comes to raising rates. In addition to the economic situation, the evolving corporate landscape has contributed positively to the investment potential of Japanese companies. In a move that’s been years in the making, the Japanese government revised the Corporate Governance Code in 2021, heralding an era of corporate reforms aiming to achieve sustainable corporate growth and increase corporate value. The Code, compiled in 2015 and first updated in 2018, has been revised to enhance board independence including increasing the number of independent directors for prime market listed companies. Other improvements include promoting diversity in senior management and placing more emphasis on ESG obligations. Nozomi Oda, partner at Morrison Foerster Law Offices in Tokyo, underscores the active role increasingly played by independent directors in executive decision-making in high-profile M&A transactions, including Toshiba’s privatisation, for the past few years. “The updated Corporate Governance Code requires Japanese public companies to enhance the function of independent directors (in terms of both quality and quantity). As a result, Japanese boards have become more international and open to investors, which has contributed to lowering the hurdles for foreign investors to invest in Japanese public companies,” says Oda. Hostile takeovers The Code’s latest revision was followed by new initiatives implemented by the Tokyo Stock Exchange (TSE) and the Ministry of Economy, Trade and Industry (METI), introducing more incentives for market liberalisation and competition. Nevertheless, these shifts have also brought complications to Japanese companies accustomed to the status quo. In particular, the METI last year has laid out guidelines aimed at promoting fairness and transparency in processes, urging boards to boost corporate value and prioritise shareholders’ interests by evaluating credible takeover offers. “Since the time of the recent release of METI’s Guidelines for Conduct in Corporate Takeovers, there has been an increase in acquisitions without consent, not only by engagement funds but also by strategic Tokyo takeovers Japan’s relaxed monetary policy and corporate restructuring efforts are driving an increase in M&A deals as international buyout firms seek bargains and activist investors push for higher returns. By Sarah Wong • Japan’s corporate governance reforms boosting investor confidence and M&A activity • Shareholder activism rising as cross-share holdings decline • Foreign investors, especially PE firms, increasingly targeting Japanese companies
RkJQdWJsaXNoZXIy MjA0NzE4Mw==