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Business deals

Japan Inc. updates strategy against hostile buyers

Toshiba Machine seeks shareholder support for 'emergency' takeover defense

Toshiba Machine has resorted to an "emergency" defense measure to fight a hostile bid by a fund linked to activist Yoshiaki Murakami. 

TOKYO -- Corporate Japan has new fodder for debate over corporate defenses after Toshiba Machine's spur-of-the-moment move to block an activist investor -- a potential test case that is being closely watched.

After a fund linked to activist Yoshiaki Murakami notified the industrial tool maker of its tender offer plan in January, the company quickly announced its intention to counter with a "poison pill" defense. Toshiba Machine scrapped its anti-takeover mechanisms last year, but its board lost no time in adopting an "emergency" measure to protect itself.

Murakami, in an interview with Nikkei, called the company's move an "outrage" and threatened legal action if the defense is activated. The investor, who was convicted of insider trading in Japan in the 2000s, said the offer was an offshoot of his side's unheeded proposals for improving shareholder value and return on equity at the industrial equipment maker.

After the Murakami-linked fund officially launched the bid, Toshiba Machine scheduled a shareholders meeting for March 27, when it will seek approval for its poison pill defense, designed to dilute the fund's holdings by issuing rights to new stock to existing shareholders.

If the poison pill is approved by a two-thirds vote, the fund may rescind its bid. If it wins a majority support but falls short of two-thirds approval, the fund may opt to file a lawsuit, sources said.

Efforts to thwart takeovers are nothing new in Japan, but they usually consist of established defenses that potential buyers know are there. No company has tried to erect such barriers against a known buyer for more than a decade -- before Japan adopted a Governance Code that frowns upon defenses without a convincing rationale for shareholders.

"It was as though time started moving again after having stopped," said one corporate lawyer here. Memories of U.S. fund Steel Partners' faceoff with condiment maker Bull-Dog Sauce in 2007 were revived.

Japanese companies have typically favored permanent takeover defenses, in which the rules facing potential buyers are laid out in advance through a process that includes shareholder approval. Another form of defense puts rights to new shares into a trust that can be activated when an acquirer steps forward.

Either way, they are meant to deter hostile buyers, and allow time for shareholders to study proposals that bring management to the negotiating table.

Permanent takeover defenses have been on the wane in Japan. As of the end of 2019, only 325 companies had them, down about 40% from peak times, according to Recof, a Tokyo-based merger and acquisition adviser.

This trend attests to shareholder influence, according to Daiji Ozawa, chief investment officer at Invesco Japan.

"When there is particular opposition to takeover defenses in Japan, which is known for strategic shareholding and other silent investors, you know there's a strong significance," Ozawa said.

If Toshiba Machine succeeds in fending off an acquisition with an emergency defense, more companies are likely to see this as a viable option. That would make these defenses a latent risk for buyers even if more companies ostensibly drop their guard.

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