Japanese Law by Hiroshi Oda

Author:Hiroshi Oda [Oda, Hiroshi]
Language: eng
Format: azw3
Publisher: OUP Oxford
Published: 2009-04-15T16:00:00+00:00

7. Mergers and Splitting of Companies

(1) Mergers

(a) Mergers in Japan

Japanese companies were not known for active M&A activities in the past. However, there has been a significant increase in the number of M&A cases since the late-1990s.

Figure 11.1 Trends in the number of M&A cases since 1985

Source: RECOF.81

However, these were mostly backward orientated ‘restructuring’ of businesses on a friendly basis, rather than M&A based upon a proactive business strategy.82

Concerning mergers between Japanese companies, if a company whose gross assets are above 10 billion yen and another company whose gross assets are above 1 billion yen are involved, reporting to the Fair Trade Commission (hereinafter ‘FTC’) which is in charge of implementation of competition law, is mandatory. In the Financial Year 2006, there were seventy-four reported cases of mergers between Japanese companies above this threshold. All mergers were mergers by absorption and not by setting up a new company. 45 per cent of the mergers involved the amount of assets after the merger being between 10 billion and 50 billion yen. Mergers with the gross assets after the merger being over 100 billion yen accounted for 14.9 per cent (eleven cases).83 Mergers involving listed companies are not common—usually less than twenty cases per annum.

Provisions on mergers in the Commercial Code originated from before the Second World War and were regarded as being complicated while protection of shareholders and creditors were insufficient. In the 1990s, with the decline of the economy, M&A came to be acknowledged as an effective means of reorganising company groups and of making companies more efficient. It was felt that streamlining and simplification of the merger procedure were needed. As part of the government’s programme for regulatory reforms, it was decided to simplify the merger procedure.84 The Commercial Code was amended in 1997 to this effect.

(b) The procedure

Mergers can take the form of uniting or amalgamating two or more existing companies to form a new company or the absorption of one or more existing companies by another and the continuing company inheriting the rights and obligations of the discontinuing company. In Japan, the latter form—merger by absorption—is common. Almost all cases of mergers reported to the FTC were by means of absorption.85 The reason for this is reportedly the rate of higher registration tax, and the need to reapply for the listing and licence in the first method.86

In order to merge, a merger agreement needs to be prepared, approved by a qualified majority vote at the general shareholders’ meeting, the procedure for the protection of creditors be taken, and the merger registered.

The Company Law provides for mandatory and optional terms to be accommodated in the merger agreement. The mandatory terms for a merger by absorption include the following (Art. 749, para. 1):

(i)Trade name and registered address of the parties.

(ii)If the continuing company is to provide shareholders of the company being absorbed with cash, pre-emption rights for new shares, etc. in exchange for the shares of the latter company, their details.

(iii)If subpara. (ii) is applicable, allocation of cash etc. to those shareholders.

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