JAPAN: An introduction to Corporate/M&A: Domestic
Overview of Japan’s M&A Market
In 2024, Japan’s M&A market (domestic, inbound and outbound M&A deals that involve Japanese companies) experienced steady growth, even though a strong resurgence in M&A activity had not yet occurred on a global basis. This overview uses data from RECOFDATA, one of the reliable M&A statistical data sources in Japan. The number of such M&A deals involving Japanese companies increased by 17.1%, from 4,015 deals in 2023 to 4,700 deals in 2024, marking a record high following a decline in the number of deals in 2023 as compared to 2022. The total value of such M&A deals involving Japanese companies increased by 8.0% from JPY18.24 trillion in 2023 to JPY19.7 trillion in 2024, making 2024 the second highest on record for the total value of such M&A deals involving Japanese companies, behind 2018.
Cross-border M&A transactions gained notable momentum in Japan’s M&A market in 2024. The deal value of outbound transactions increased by 16.9% from JPY8.16 trillion in 2023 to JPY9.53 trillion in 2024, and the deal value of inbound transactions increased by 74.5% from JPY2.08 trillion in 2023 to JPY3.63 trillion in 2024.
All topseven M&A deals involving a Japanese company in 2024 in terms of deal value were cross-border transactions (six outbound and one inbound), with each exceeding JPY500 billion in deal value. The largest of such deals in 2024 was an outbound transaction, in which Nippon Life Insurance acquired US-based Resolution Life for JPY1.25 trillion; this was also the largest M&A deal ever involving a Japanese insurance company. The top three outbound transactions in 2024 were acquisitions of US companies (including the aforementioned acquisition by Nippon Life Insurance), with deals involving US companies accounting for approximately 70% of the total value of outbound transactions that year.
Prompted by the “Guidelines for Corporate Takeovers” released by the Ministry of Economy, Trade and Industry in August 2023, there has been an increase in cases in which acquisition proposals are publicly announced by potential acquirers without prior agreement with the target company’s board of directors. For example, on 19 August 2024, Canadian convenience store chain Alimentation Couche-Tard announced a takeover proposal for Seven & i Holdings. In response, on 13 November 2024, Seven & i Holdings disclosed that it had received a non-binding acquisition offer from the company’s founding family. The company’s special committee is conducting a careful and comprehensive review of these proposals.
The mindset of Japanese companies towards unsolicited tender offers may also be shifting, as reflected by Nidec’s unsolicited takeover proposal for TAKISAWA in August 2023, which was eventually supported by TAKISAWA’s board of directors, leading to a successful tender offer bid. Daiichi Life made an unsolicited counter tender offer bid for Benefit One in 2024, which surpassed a prior tender offer bid initiated by another Japanese company and was successfully executed. On 26 December 2024, Nidec also made a takeover proposal for Makino Milling Machine. Despite the lack of support from Makino’s board of directors, Nidec plans to initiate the tender offer bid in April 2025.
Amendments to the Tender Offer Regulations
On 15 May 2024, the National Diet approved amendments to the Financial Instruments and Exchange Act of Japan (FIEA), which will significantly amend the Japanese tender offer regulations as well as the large shareholding reporting regulations. The purpose of the amendments is to address recent changes in the markets and the M&A landscape. The amendments will become effective within two years from their announcement, which was 22 May 2024. While the amendments to the tender offer regulations cover a wide range of topics, the most notable amendments are the following, as described further below: (i) the one-third threshold for a mandatory tender offer will be decreased to 30%; (ii) on-market purchases will be subject to the tender offer regulations; and (iii) the so-called “rapid purchase rule” will be abolished.
Further to foregoing item (i), under the current tender offer regulations, an off-market purchase and an off-the-floor purchase will trigger a mandatory tender offer if the acquiror’s shareholding ratio in a company after such purchase exceeds one third. After the amendments, this threshold will be reduced to 30%. Further to foregoing item (ii), under the current tender offer regulations, on-market purchases do not in principle trigger a mandatory tender offer. However, after the amendments, the new 30% threshold will also apply to on-market purchases, such that if an acquiror purchases shares on a stock market and such acquiror’s shareholding ratio in a company exceeds 30% after such purchase, such purchase must be conducted by way of a tender offer. Further to foregoing item (iii), the current tender offer regulations have a so-called “rapid purchase rule”, which prohibits acquirors from purchasing, within three months, more than one-third of shares in a company through a combination of off-market or off-the-floor purchases, which are subject to the tender offer regulations, and transactions that are not subject to the tender offer regulations, such as on-market purchases. While this “rapid purchase rule” was introduced to prevent circumvention of the tender offer regulations, this rule will be abolished after the amendment, given that on-market purchases will be subject to the tender offer regulations as a result of the amendments.
Amendments to the Large Shareholding Reporting Regulation
In Japan, under the Large Shareholding Reporting Regulation, generally, a person who holds more than 5% of the shares of a listed company needs to submit and disclose to the public a large shareholding report, and if such person’s shareholding ratio increases or decreases by 1% or more thereafter, a change report also needs to be submitted and disclosed. The amendments to the FIEA will also amend the large shareholding reporting regulations. Such amendments include, among others, amendments to (i) the scope of the “joint holders” and (ii) the scope of the holders who will be subject to such regulations.
More specifically, further to foregoing item (i), in order to promote collective and collaborative engagement for constructive dialogue between investors and companies, generally, if certain financial institutions (Financial Instruments Business Operators) do not agree on “material proposals” which are to be specified under the regulations, but separately agree on their individual shareholders’ rights, then they will not be required to aggregate their ownership ratio as “joint holders” under the regulation. Further to foregoing item (ii), in order to address hidden ownership issues in respect to shares of a listed company, a person who conducts certain cash settlement equity derivative transactions, including certain total equity swap transactions for the purpose of acquiring the shares, would also be regarded as a holder who is subject to the Large Shareholding Reporting Regulation.