Key points

  • The 2023 Guidance does not uniformly characterize unsolicited acquisitions as harmful. The board of directors needs to seriously consider whether specific proposals contribute to corporate value and the common interests of shareholders.
  • The three guiding principles are the principle of corporate value and common interests of shareholders, the principle of shareholder will, and the principle of transparency.
  • In many cases, the final decision on whether to accept a takeover proposal is left to the shareholders. The role of the board of directors is to prepare comparable information, conduct necessary negotiations, and explain the reasons for decisions.

Stay away from the word "hostile"

Traditionally, in Japan, takeovers without the consent of management have been called "hostile takeovers," and there has been a tendency to treat them as if they were undesirable transactions in and of themselves. However, being hostile to management is not the same as being detrimental to shareholders and the company.

Therefore, the 2023 Guidelines adopt a perspective that is more in line with the fact that the acquisition is an unsolicited acquisition without the consent of the target company's board of directors, rather than the emotionally charged expression "hostile." Even if it is unsolicited, there is a possibility that the proposal will increase corporate value after considering the price, certainty of funding, business plan, impact on employees and business partners, and post-acquisition management policy. On the other hand, even if a proposal starts out amicably, it will be undesirable for shareholders if the terms are unfair.

three principles

principle meaning
Principles of corporate value and common interests of shareholders The pros and cons of an acquisition are determined based on whether it contributes to the company's sustainable corporate value and the interests of shareholders as a whole.
Principles of shareholder will When making decisions regarding control of a company, respect the wishes of shareholders given reasonable information and time.
Principle of transparency Both the acquirer and the target company appropriately disclose information necessary for shareholders to make decisions.

The three principles are neither intended to promote takeovers nor to negate defensive measures. This is a standard that organizes the roles of the acquirer, the target company's board of directors, and shareholders, and creates a fair judgment process.

What should the board do?

The practice of a board of directors that receives an unsolicited takeover proposal is easy to understand if you consider the following flow.

1. Determine whether the proposal is sincere.

In addition to the proposed price, we check the financing support, post-acquisition business plan, necessary permits and approvals, conditions for completion of the transaction, and the acquirer's track record. There is no need for an immediate company-wide response to inquiries that lack specificity. On the other hand, it is also not appropriate to ignore potentially viable proposals based solely on the wishes of management.

2. Establish an independent review system

Conflicts of interest arise in judgments when management may lose their position as a result of an acquisition. A special committee will be established as necessary, with independent outside directors focusing on the matter. The necessity of a special committee will depend on the nature of the transaction, but the stronger the interests of management, the greater the need for an independent entity to be involved in price negotiations and judgments.

3. Compare with alternatives

The acquisition proposal is not a choice between maintaining the status quo. Compare with standalone medium-term plans, changes in capital policy, business sales, proposals from other acquirers, etc. If the target company claims that its plan is better, it must demonstrate the plan's assumptions, feasibility, and timeline in a way that shareholders can compare.

4. Negotiate terms

The board doesn't just say whether it's for or against something. Negotiate for better terms for the company and shareholders, including price, purchase period, preconditions, treatment of employees and business partners, provision of information, and contractual restrictions.

5. Provide judgment material to shareholders

In order for shareholders to make a decision, they need not only the acquirer's proposal, but also an analysis of the target company's board of directors, an independent committee's opinion, a value calculation concept, and alternative plans. If the board objects, abstract arguments such as “it doesn't fit the corporate culture” or “it's not long-term oriented” are not enough. Explain which conditions undermine corporate value.

2026 “Points/Q&A”

In 2026, the Ministry of Economy, Trade and Industry restarted a study group on fair acquisitions and compiled “Points/Q&A” to apply the concepts of the 2023 Guidelines to practice. Rather than replacing them with new guidelines, they confirmed that the 2023 Guidelines continue to be appropriate, and supplemented their interpretation with respect to consideration of proposals, confirmation of shareholder intentions, comparison of multiple proposals, etc.

In practice, the following points are important.

  • The board of directors does not necessarily immediately announce the fact that it has received a proposal, but when it reaches a stage that is important for shareholder judgment, timely and appropriate disclosure becomes necessary.
  • If there are multiple proposals, compare not only price, but also conditions, feasibility, time, and business impact on the same basis.
  • When an acquirer requests information, consider providing reasonable information to evaluate the proposal, taking into account confidentiality and competitive concerns.
  • There is more than one way to confirm shareholder intent. Judgments will be made depending on the type of transaction, such as applying for a TOB, voting at a general meeting of shareholders, and confirming intentions regarding the activation of takeover defense measures.

How should takeover defense measures be positioned?

The 2023 Guidelines do not completely deny takeover defense measures. However, they say that defensive measures should not be used to protect the management team, but rather to secure information and time for shareholders to make decisions, and to protect corporate value and the common interests of shareholders.

When introducing or activating defensive measures, the following points should be considered.

  1. Are the target acquirers and actions clear?
  2. Is it necessary and appropriate?
  3. Were independent outside directors substantially involved?
  4. Is there a system in place to confirm shareholder intentions?
  5. Is there no undue disadvantage to the acquirer and unreasonable exclusion of competitive proposals?

If companies continue to request information indefinitely in order to buy time, or if they impose difficult-to-fulfill conditions only on the acquirer, transparency and appropriateness will be lacking. Defensive measures need to be designed not as “a mechanism to stop takeovers,” but “a mechanism to create a forum where shareholders can make informed decisions.”

Implications that IR personnel should be aware of

  1. Create a line of communication during normal times in case you receive an unsolicited proposal. Determine the roles of the CEO, chairman of the board, independent outside director, legal affairs, IR, external lawyers, and FA.
  2. Always be ready to explain independent continuation plans. The medium-term plan that was hastily created after receiving the acquisition proposal lacks persuasive power. Clarify capital cost, business portfolio, and capital allocation on a daily basis.
  3. Evaluate based on conditions and procedures, not "friendly or hostile." Do not make relationships with management the focus of explanations to shareholders.
  4. Accelerate the provision of information to independent outside directors. In cases where there is a strong conflict of interest, it is not enough for outside directors to approve the matter afterwards. Involve them from the early stages of proposal evaluation and terms negotiation.
  5. Assemble the explanation for shareholders by comparing the two. Compare acquisition and go-ahead proposals, and other proposals as appropriate, using the same assumptions and time horizon.

Source/reference materials

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