JAPAN LAWYERS GUIDE 2018/19
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40JAPAN LAWYERS GUIDE 2018/19to achieve sustainable and mid- to long-term growth, it has become more important for companies to explain to their shareholders how a proposed M&A transaction would result in the sustainable and mid- to long-term growth of the company. e Code also recommends that remuneration to di-rectors include incentives that reect mid- to long-term performance or potential risks. As one of the reactions of this recommendation, the introduction of new types of remuneration has become a very hot issue in Japanese corporate governance. For example, so-called “restricted stock”, which is commonly used as a long-term incen-tive in western countries, has been rapidly introduced. Restricted stock is granted to management with certain conditions including transfer restrictions, and the rele-vant laws and practices have been recently amended for issuing restricted stock in Japan. In 2016, the Ministry of Economy, Trade and Industry of Japan (“METI”) issued a practical guide for issuing restricted stock under cur-rent Japanese law. Additionally, the tax laws were amend-ed in 2016. Under the amended tax laws, management is not taxed upon grant of the stock, but rather when the restriction on transfer is lifted. e ordinance of the Financial Instruments and Exchange Act has been also amended to grant certain exceptions to required disclo-sures regarding the restricted stock. ese amendments will facilitate the introduction of new management re-muneration structures in Japan.Although Japanese companies are active in cross-border M&A deals, they have not typically granted long-term incentives in the M&A transactions. However, with the rapid movement toward introduction of long-term incen-tives, we may see more cases in the near future of Japanese companies giving long-term incentives to the manage-ment of overseas target companies in cross-border M&A. Court decisions regarding the fairness of price in M&AIn recent years, an increasing number of minority share-holders who are to be squeezed out have begun ques-tioning the fairness of the squeeze-out price, especially in MBO transactions or acquisition by a majority share-holder where there is an issue of a conict of interest be-tween the minority shareholders and the management or majority shareholder of the company. e Companies Act allows shareholders who oppose the squeeze-out to request the courts to determine the “fair price” of their shares. However, it does not dene the parameters in de-termining the fairness of the share price, and the courts are free to make that determination at their own discre-tion. is uncertainty in price determination poses a ma-jor risk when conducting a squeeze-out process, and has contributed to the rise in challenges of the squeeze-out price by minority shareholders.Court challenges started in now famous cases such as the Rex Holding, the Sunster and the Cybird cases. Each of the courts in these cases considered various factors in de-ciding the fair price but stressed the importance of the market price among other pricing measures. Since the determination of the fair price was made on a case-by-case basis, it was difcult to establish exactly what factors will be taken into account in addressing the issue. In this context, the Supreme Court made an important decision in 2016 in the Jupiter Telecommunications Co., Ltd. case (J:COM case), reversing the lower court deci-sions that followed the previous framework in deciding the fair price in squeeze-out procedures after the tender oer. Under the previous framework, as described above, the court tried to determine the fair price itself, taking into account various factors and using certain calculation measures. On the other hand, in the J:COM case, the Supreme Court held that, even in a case where there is a conict of interest between the majority shareholder (i.e. acquirer) and the minority shareholders, if the tender of-fer is conducted in accordance with “generally accepted fair procedures”, the court should in principle approve the tender oer price as a fair squeeze-out price.his Supreme Court decision is regarded as a paradigm change from the previous framework. Although there was a similar Supreme Court decision in the Tecmo, Ltd case in 2012 involving a corporate reorganisation trans-action, the J:COM case is the rst time the Supreme Court has made it clear in the context of a post-tender oer squeeze-out that the court will basically review the fairness of the procedures rather than the fairness of the price itself. In the J:COM case, the Supreme Court cit-ed examples of the “generally accepted fair procedures” that were followed, including the fact that: (i) J:COM established an independent committee and obtained its opinion; and (ii) it was clearly announced in the tender

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