Makiko Yamazaki

TOKYO, Reuters – Japan’s leading newspaper printer could be subject to hostile takeover bids. A court decision will determine whether or not the company can proceed with a poisonous pill against an unsolicited shareholder.

It is a question of whether Tokyo Kikai Seisakusho Ltd (105 years old) will be allowed not to count votes of Asia Development Capital, an investment group that has built up the majority of its 40% stake over a few weeks. When shareholders vote on issuing stock that could dilute ADC’s ownership, this is where the issuer is at dispute.

Stakeholders who hold more than 33% of Japan’s stock have the right to veto important board decisions, and can sometimes even de facto control.

ADC requested an injunction. Tokyo District Court’s ruling, which was the first court to examine an attempt by an investor to be excluded from a shareholder vote regarding a poison pill, is expected to come within the next week. Tokyo Kikai could win and make it more easy for Japanese companies using poison pills.

Tokyo Kikai (which has claimed that ADC harms its corporate values) will submit the poison pills plan for shareholder approval at an extraordinary meeting of shareholders on Friday.

It highlights the increase in Japanese hostile takeovers, which were once the province of greedy corporate raiders. However, the battle also sheds the stigma associated with the practice. Some experts believe that the Japanese takeover rules are too weak, leaving small businesses vulnerable.

Investors are also watching closely to determine if Fumio, Japan’s new prime Minister, will reverse some pro-market policies pursued by Shinzo Abe.

According to experts in corporate governance, it can be difficult for judges and juries to decide which direction they will go.

ADC’s claim that Tokyo Kikai would be ruled in ADC’s favor is strong, as shareholder equality principle is embedded in Japanese corporate law.

Takumi Watanabe is an executive at QuestHub. She stated, “If a targeted company can choose who is allowed vote on a poison tablet, it will create all kinds of excuses for creating a list of eligible shareholder who have the best chance to pass the pill.”

However, governance experts believe that the court could decide ADC is an abusive buyer. ADC’s rapid growth and inability to provide a revised management plan for the company and its shareholders would be a threat to minority shareholder rights.

It would not happen overseas.

A permanent poison pill was a common feature of Japanese companies. It was usually part of the articles of incorporation. However, the practice was often criticised as a way to entrench bad management. It fell out favor when corporate governance reforms initiated by Abe made it mandatory for institutional investors to reveal how they vote on items in shareholder meetings.

The first successful use of a poison pill to target a bidder – also known as an emergency poison pills in Japan – was made last year by Toshiba Machine (OTC:) Machine, renamed Shibaura Machine in their fight against Yoshiaki Murakami.

At least five additional firms, including Tokyo Kikai, have introduced or attempted to introduce them since then. Among them, Shinsei Bank plans to seek shareholder approval https://www.reuters.com/business/shinsei-bank-plans-poison-pill-defence-against-sbis-11-bln-bid-sources-2021-09-17 for a poison pill to thwart online financial conglomerate SBI Holdings’ $1.1 billion bid.

Experts believe that the current outbreak of poison pill activity highlights a lack in clarity about what Japanese companies can do for takeovers.

Atsuko Furuta, director of IR Japan, said that officials in companies are currently pondering what is allowed.

These experts note that Japanese small-cap firms are especially vulnerable to unwelcome stake-building. Tokyo Kikai has, at most, a market worth of 15 billion yen (130 million).

Japanese company boards are not allowed to adopt poison pills as a quick way of fending off hostile suitors, unlike the United States. Court precedents lead them to believe that shareholders must approve any poison pill adoptions, even though it’s not required by law. It is a slow and tedious process.

Tender offers in Europe are required for stake acquisitions above a threshold. This rule prevents cases such as Tokyo Kikai.

Wataru Tanaka from the University of Tokyo is an expert in corporate law and believes that fixing takeover regulations should be a priority for the government.

He said that poison pills were a “second-best” solution.

($1 = 114.3800 yen)