Foreign law firms in Japan are gearing up for an M&A explosion this year, with Japanese commercial and corporate laws set to be completely overhauled for the first time in 100 years.
The Japanese Ministry of Justice is expected to introduce the sweeping changes between April and June, which will see the liberalisation of corporate governance and greater flexibility in M&A.
More new laws have been scheduled to be brought in by mid-2007.
Under the company laws, minor shareholders can be squeezed out to allow cash-out mergers, whereby cash is awarded in lieu of shares.
Triangular or ‘three-way’ mergers will also be permitted, allowing a foreign company to use its shares to make the Japanese company a subsidiary of its own.
Laws facilitating complex mergers are expected to come into effect in 2007. The Japanese Ministry of Justice was initially hesitant to introduce the laws amid fears of hostile takeovers. The delayed enforcement has been offered as a compromise to allow Japanese companies time to prepare counter measures for hostile takeovers, such as poison pills and golden shares.
Corporate lawyers in Japan have big expectations for the revised laws, with some looking forward to a burst of foreign investment and M&A activity.
Tokyo-based Linklaters corporate M&A partner Hidehiro Utsumi told The Lawyer that further laws could be introduced later this year, which would make triangular mergers tax-free.
“If the tax laws are passed, we expect to see a dramatic increase in M&A work, because foreign firms want to invest in Japan,” said Utsumi. “These are the biggest changes to Japanese corporate laws in 100 years.”
Linklaters Asia managing partner Simon Davies added: “These laws will certainly help in the development of the M&A market in Japan.”