FAQ on Financial Instruments and Exchange Act

Section 4 Tender Offer regulation

Q1.

What is the Tender Offer regulation?

A1.

Tender Offer refers to an act of offers for Purchase, etc. or soliciting offer for Sales, etc. of Share Certificates, etc. from many and unspecified persons through public notice, and making Purchase, etc. of Share Certificates, etc. outside of Financial Instruments Exchange Markets (Article 27-2(6) of the FIEA).

2.

Specifically, in order to secure transparency and fairness of securities trading that affects the controlling interest in the company, the FIEA obligates the following, mainly in the case of making Purchase, etc. of a large amount of Share Certificates, etc. outside of Financial Instruments Exchange Markets: (i) the Tender Offeror must disclose the Tender Offer Period, the volume to be purchased, the Tender Offer Price, etc. in advance; and (ii) the Tender Offeror must provide shareholders a fair opportunity to sell Share Certificates, etc.

Q2.

Which specific transactions are subject to application of the Tender Offer regulation?

A1.

The following three points represent the basic aspects for demarcating the scope of application of the Tender Offer regulation:

(i)

the target of the regulation is the Purchase, etc. of Share Certificates, etc. outside of Financial Instruments Exchange Markets, in principle;

(ii)

small-scale transactions, which are considered to have little impact on the controlling interest in the company, are excluded from the regulation; and

(iii)

since Purchases, etc. from an extremely small number of persons cannot be discussed on the same ground as Purchases, etc. by many and unspecified persons in terms of the need for widely disclosing information and for giving shareholders an opportunity for Purchase, etc., differences are established in the percentage of the Share Certificates, etc. Holding Rate after the Purchase, etc. that is subject to application of the Tender Offer regulation.

2.

Specifically, the FIEA provides that the following Purchases, etc. of Share Certificates, etc. are to be made by means of Tender Offer (Article 27-2(1) of the FIEA), and additionally provides for exceptions (the proviso to Article 27-2(1) of the FIEA; Article 6-2(1) of the FIEA Enforcement Order; see Q 116):

(i)

the case where the Share Certificates, etc. Holding Rate after the Purchase, etc. of Share Certificates, etc. outside of Financial Instruments Exchange Markets exceeds 5% (excluding transactions at an Over-the-Counter Securities Market and Purchases, etc. from an extremely small number of persons [ten persons or less during a period of 60 days]) (Article 27-2(1)(i) of the FIEA; Article 6-2(2) and (3) of the FIEA Enforcement Order);

(ii)

Purchases, etc. of Share Certificates, etc. from an extremely small number of persons outside of Financial Instruments Exchange Markets where the Share Certificates, etc. Holding Rate exceeds one-third of the outstanding total (Article 27-2(1)(ii) of the FIEA);

(iii)

Purchases, etc. using the method of Specified Sales and Purchase, etc. (off-floor trading) at a Financial Instruments Exchange Market where the Share Certificates, etc. Holding Rate exceeds one-third (Article 27-2(1)(iii) of the FIEA);

(iv)

rapid Purchases, etc. where a combination of Purchases at or outside of Financial Instruments Exchange Markets and Acquisition of Newly Issued Share Certificates, etc. (acquisition of Share Certificates, etc. which is newly issued by its Issuer) are made in excess of a certain proportion during a period of three months and where the Share Certificates, etc. Holding Rate after these transactions exceeds one-third (Article 27-2(1)(iv) of the FIEA);

(v)

Purchase, etc. of Share Certificates, etc. in excess of a certain portion by a holder whose Share Certificates, etc. Holding Rate exceeds one-third during the period of another person’s Tender Offer (Article 27-2(1)(v) of the FIEA); and

(vi)

the case of applying (iv) above by deeming the acquisition of Share Certificates, etc. by Specific Interested Parties of the purchaser of Share Certificates, etc. as acquisition of Share Certificates, etc. by the Tender Offeror (Article 27-2(1)(vi) of the FIEA; Article 7(7) of the FIEA Enforcement Order).

Q3.

What is the treatment for purchases combining transactions at and outside of Financial Instruments Exchange Markets?

A1.

Purchases, etc. of Share Certificates, etc. outside of Financial Instruments Exchange Markets are, even if they are Purchases, etc. from an extremely small number of persons (ten persons or less during a period of 60 days), obligated to be made by means of a Tender Offer if the Share Certificates, etc. Holding Rate after the purchase exceeds one-third (the so-called “one-third rule”) (Article 27-2(1)(ii) of the FIEA; Article 6-2(3) of the FIEA Enforcement Order). However, there can be persons who try to acquire Share Certificates, etc. exceeding one-third without using the means of a Tender Offer by purchasing shares up to 32% outside the market, and subsequently acquiring shares of 2% by purchasing them at the market or receiving third-party allocation of new shares.

2.

In order to deal with such law-evading style of transactions, the FIEA clearly provides that the case of rapid Purchases, etc. combining Purchases, etc. at and outside of Financial Instruments Exchange Markets where the subsequent Share Certificates, etc. Holding Rate exceeds one-third is subject to Tender Offer regulation (Article 27-2(1)(iv) of the FIEA).

3.

The specific style of rapid Purchases, etc. that are subject to regulation is the case where the Share Certificates, etc. Holding Rate exceeds one-third by making, within a period of three months, acquisition of Share Certificates, etc. where Purchases, etc. (excluding those by means of a Tender Offer and those excluded from application of the regulation as provided for in the proviso to Article 27-2(1) of the FIEA) outside of Financial Instruments Exchange Markets (including off-floor trading) exceeds 5% and where acquisition in excess of 10% is made through Purchases, etc. at or outside of Financial Instruments Exchange Markets or Acquisition of Newly Issued Share Certificates, etc. (acquisition of Share Certificates, etc. which is newly issued by its Issuer) as a whole (Article 7(2) through (4) of the FIEA Enforcement Order).

Q4.

For example, in cases where the purchaser has purchased a volume of Share Certificates, etc. equivalent to more than 5% of the outstanding total outside of Financial Instruments Exchange Markets through means other than a Tender Offer and where it plans to conduct an additional purchase within three months in order to increase the Share Certificates, etc. Holding Rate to more than one-third, would it be sufficient to conduct the additional purchase through a Tender Offer?

A1.

When Article 27-2(1)(iv) of the FIEA is applied, Purchases, etc. conducted within three months of each other (Article 7(2) of the FIEA Enforcement Order) are recognized as one purchase.

2.

Consequently, in the case in question, if the combined purchase volumes of the first and second Purchases, etc. would exceed 10% of the outstanding total, it would not be sufficient to conduct the second Purchase, etc. through a Tender Offer. The first Purchase, etc. should also have been conducted through a Tender Offer.

3.

If the first transaction has already been conducted, the second transaction can be conducted only after the passage of three months.

4.

In light of the nature of this regulation, when a transaction is conducted outside of Financial Instruments Exchange Markets, it is necessary to make a careful judgment as to whether or not it is necessary to do so through a Tender Offer after examining the schedule of future transactions, etc.

Q5.

What is the treatment for the case where another person makes purchases during a period when a Tender Offer is conducted?

A1.

When Purchases, etc. of Share Certificates, etc. that affect the controlling interest in a company are competing against one another, general investors would have to make more complicated Investment Decisions and there would be concerns that shareholders other than the competing parties would be forced into a non-significant standing. Therefore, a person who makes competitive Purchases, etc. during a period in which another person is conducting a Tender Offer is also subject to the Tender Offer regulation (Article 27-2(1)(v) of the FIEA). However, in order to avoid overregulation, a Tender Offer is obligated when, during a period when a person conducts a Tender Offer, another person who holds more than one-third of the outstanding total also makes rapid purchases (Article 27-2(1)(v) of the FIEA).

2.

Specifically, the Tender Offer regulation applies when, during a period when a person is already conducting a Tender Offer, another person who holds more than one-third of the outstanding total makes Purchases, etc. of more than 5% at or outside of Financial Instruments Exchange Markets (Article 7(5) and (6) of the FIEA Enforcement Order; Article 4-2(3) of the Cabinet Office Ordinance on Disclosure Required for Tender Offer for Share Certificates, etc. by Person Other than Issuer [hereinafter referred to as the “Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer”]).

Q6.

How does the FIEA provide for cases that are excluded from application of the Tender Offer regulation?

A1.

In light of the purpose of the Tender Offer regulation, the FIEA excludes the following transactions from application of the Tender Offer regulation as those that are not likely to impair the protection of investors even if they were not conducted by means of a Tender Offer or those that have little need to be conducted by means of a Tender Offer:

(i)

the Purchase, etc. of Share Certificates, etc. conducted as an exercise of a share option, etc. (the proviso to Article 27-2(1) of the FIEA; Article 6-2(1)(i) through (iii), (xi) and (xii) of the FIEA Enforcement Order);

(ii)

the Purchase, etc. of Share Certificates, etc. from Specific Interested Parties (the proviso to Article 27-2(1) of the FIEA; Article 3(1) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer);

(iii)

the Purchase, etc. of Share Certificates, etc. within a corporate group (Article 6-2(1)(v) and (vi) of the FIEA Enforcement Order; Article 2-3 and Article 2-4 of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer); and

(iv)

the Purchase, etc. of Share Certificates, etc. from an extremely small number of persons where the total number of holders of Share Certificates, etc. is less than 25 and all of the holders have given their consent to not using the means of a Tender Offer, among those where the Share Certificates, etc. Holding Rate after the Purchase, etc. exceeds one-third of the outstanding total (Article 6-2(1)(vii) of the FIEA Enforcement Order; Article 2-5(1) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

2.

In addition to the above, transactions including (i) the Purchase, etc. pertaining to Share Certificates, etc. issued by a Subsidiary Company in which the company holds more than 50% of the voting rights and (ii) Specified Purchase, etc. made through the exercise of the security interest are also excluded from application of the Tender Offer regulation (Article 6-2(1)(iv), (viii) through (x) and (xiii) through (xv) of the FIEA Enforcement Order; Article 2-6 of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

Q7.

How does the FIEA provide for the disclosure in a Tender Offer Notification?

A1.

A Tender Offeror must submit a Tender Offer Notification to the Prime Minister on the day of making a Public Notice for Commencing Tender Offer (Article 27-3(2) of the FIEA).

2.

A Tender Offer Notification must contain information including the outline of the Tender Offer, the situation of the Tender Offeror, the status of the holding and trading of Share Certificates, etc. by the Tender Offeror and its Specific Interested Parties, transactions between the Tender Offeror and the Subject Company and the situation of the Subject Company (Form 2 of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

3.

In addition, the following documents need to be attached to the Tender Offer Notification (Article 13(1) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer):

(i)

the articles of incorporation or a document equivalent thereto;

(ii)

when the Tender Offeror is a juridical person, etc. other than the company that needs to submit the Annual Securities Report, a document that sufficiently establishes that the juridical person, etc. has been formed;

(iii)

when the Tender Offeror is an individual, the residence certificate or a document in substitution thereof;

(iv)

when the Tender Offeror is a Non-Resident, a document proving the granting of the authority to represent said person for all acts concerning submission of documents pertaining to the Tender Offer;

(v)

a copy of the contract concluded with a securities company or Bank, etc. with regard to the custody of Share Certificates, etc., payment for the Purchase, etc. and other affairs;

(vi)

when there is a person who makes a Purchase, etc. of Share Certificates, etc. by means of a Tender Offer as an agent for the Tender Offeror, a copy of the contract concluded with regard to the agency;

(vii)

a document that sufficiently indicates the balance of the Tender Offeror’s deposit in a Bank, etc. or any other existence of funds necessary for the Tender Offer;

(viii)

when there is an evaluation report, etc. by a third party which has been used as a reference material in calculating the Tender Offer Price, a copy thereof (limited to the case where the Tender Offeror is an officer of the Subject Company, a person conducting the Tender Offer based on a request of the officer, a company for which the Subject Company is a Subsidiary Company, etc.);

(ix)

when the acquisition of Share Certificates, etc. requires the permission, etc. of an administrative agency based on another law or regulation, a document that sufficiently establishes that the said permission, etc. has been obtained (limited to the case where the permission, etc. has already been obtained); and

(x)

a document stating the contents of the Public Notice for Commencing Tender Offer.

Q8.

In what kind of cases is it possible to change the Terms of Purchase, etc. for a Tender Offer?

A1.

With regard to the Terms of Purchase, etc. for a Tender Offer, the FIEA prohibits changes in a way that will be disadvantageous for the accepting shareholders, such as lowering of the Tender Offer Price (Article 27-6(1) of the FIEA). However, if the lowering of the Tender Offer Price is not allowed when the share price is diluted as a result of the Subject Company conducting a share split or allotment of shares or share options without contribution as so-called anti-takeover measures, it could cause unexpected damage to the Tender Offeror. Therefore, the FIEA permits the lowering of the Tender Offer Price corresponding to the diluted amount (Article 27-6(1)(i) of the FIEA; Article 13(1) of the FIEA Enforcement Order; Article 19(1) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

2.

The lowering of the Tender Offer Price mentioned above is permitted only in cases where the Public Notice for Commencing Tender Offer and the Tender Offer Notification state as one of the Terms of Purchase, etc. that the price for Purchase, etc. may be lowered if the Subject Company conducts a split of Shares, etc. or allotment of shares or share options without contribution during the Tender Offer Period (Article 27-6(1)(i) of the FIEA).

Q9.

In what kind of cases is it possible to withdraw a Tender Offer?

A1.

The FIEA permits withdrawal of a Tender Offer in the case where any important change occurs in the business or property of the Subject Company or its Subsidiary (Article 27-11(1) of the FIEA).

2.

In addition, the report of the Working Group on the Tender Offer Regulation, etc. of the First Subcommittee of the Financial System Council states that in certain cases it is appropriate to allow withdrawal for a Subject Company that has introduced so-called anti-takeover measures. Based on this, withdrawal is permitted also on specific grounds including the following: (i) when having made a decision to conduct a split of Shares, etc. or allotment of shares or share options without contribution (Article 14(1)(i)(l) and (m) of the FIEA Enforcement Order); (ii) when having made a decision to issue new shares or share options, etc. (Article 14(1)(i)(n) of the FIEA Enforcement Order); (iii) when having made a decision to dispose of or transfer important property (Article 14(1)(i)(q) of the FIEA Enforcement Order); or (iv) when having decided to borrow a large amount of money (Article 14(1)(i)(r) of the FIEA Enforcement Order).

3.

Withdrawal is also permitted in the case where so-called anti-takeover measures have been taken and the Subject Company has already made and publicly announced a decision that it may conduct issuance of new shares or any other act that would reduce the Share Certificates, etc. Holding Rate of the Tender Offeror by 10% or more after the Tender Offer, and has publicly announced that it will maintain such anti-takeover measures (Article 14(1)(ii)(a) of the FIEA Enforcement Order; Article 26(2) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer). Since so-called anti-takeover measures would not be limited to such measure that dilutes the Share Certificates, etc. Holding Rate of the Tender Offeror, but would also include a measure to issue class shares with veto rights, etc. in advance, withdrawal is also permitted when the Subject Company makes a decision to maintain class shares with veto rights, etc. without changing their contents (Article 14(1)(ii)(b) of the FIEA Enforcement Order).

Q10.

Why is the Subject Company of a Tender Offer obligated to submit a Subject Company's Position Statement?

A1.

The position which the Subject Company takes toward the Tender Offer is considered to be important information for shareholders and investors to make accurate Investment Decisions. In particular, in the case of a hostile Tender Offer, it would be possible to enhance the accuracy of the Investment Decisions of shareholders and investors by making the arguments and counterarguments of the Tender Offeror and the Subject Company visible to them. From such a viewpoint, the Subject Company is obligated to state its position (Article 27-10(1) of the FIEA).

2.

The Subject Company must submit a Subject Company's Position Statement within ten business days from the day of the Public Notice for Commencing Tender Offer (Article 27-10(1) of the FIEA; Article 13-2(1) of the FIEA Enforcement Order).

3.

A Subject Company's Position Statement is made available for public inspection (Article 27-14 of the FIEA). A person who submits a Subject Company's Position Statement containing a false statement is subject to the punishment of imprisonment with work for not more than five years, etc. (Article 197-2(vi) and Article 207(1)(ii) of the FIEA), and a person who fails to submit a Subject Company's Position Statement is subject to the punishment of imprisonment with work for not more than one year, etc. (Article 200(x) and Article 207(1)(v) of the FIEA).

Q11.

What kind of matters should be included in the statement of the position of the Subject Company of a Tender Offer?

A1.

Subject Company’s position and the reason therefor, and (ii) if the company has introduced or plans to introduce so-called anti-takeover measures, the contents thereof (Article 27-10(1) of the FIEA; Article 25(1) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer). In addition, a Subject Company is required to particularly state the process of making the decision on supporting or opposing the Tender Offer, as the reason for the company’s position (Article 25(2) and Points to Note in Preparing Statements (b) of Form 4 of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

2.

It is also permissible for a Subject Company to withhold a statement of its position while indicating the reason therefor, depending on the situation (Points to Note in Preparing Statements (a) of Form 4 of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

Q12.

Why is the Subject Company of a Tender Offer given an opportunity to ask the Tender Offeror questions?

A.

By giving the Subject Company of a Tender Offer an opportunity to ask the Tender Offeror questions, the differences in the position between the Tender Offeror and the Subject Company are considered to become clearer, and this is considered to be useful information for investors and shareholders to make Investment Decisions. Due to such an idea, the Subject Company is given an opportunity to ask the Tender Offeror questions in the Subject Company's Position Statement (Article 27-10(2)(i) of the FIEA).

Q13.

What is the arrangement for the Subject Company of a Tender Offer to ask the Tender Offeror questions, and how many opportunities to ask questions are available?

A.

Given that the process of a Tender Offer is an interaction with regard to the control of a listed company, etc., both the Tender Offeror and the Subject Company have inherent incentives to provide persuasive information to investors and shareholders. Also, it is a common practice for Subject Companies to ask Tender Offerors questions. In light of the facts above, just one opportunity to ask questions is legally provided for the Subject Company, and this matter is in principle left to the voluntary initiative of the parties concerned as a matter of market practice.

Q14.

How should a Tender Offeror respond when it receives questions from the Subject Company?

A1.

When a Tender Offeror receives questions from the Subject Company in the Subject Company's Position Statement, it must submit a “Tender Offeror's Answer” containing its answers to those questions within five business days from the day of receipt of a copy of the Subject Company's Position Statement (Article 27-10(11) of the FIEA; Article 13-2(2) of the FIEA Enforcement Order). However, because an answer from the Tender Offeror becomes subject to evaluation by investors and shareholders, including whether or not the Tender Offeror gives an answer, the Tender Offeror may also choose not to give an answer as long as it indicates the reason therefor (Article 13-2(2) of the FIEA Enforcement Order; Article 25(3) of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

2.

A Tender Offeror's Answer is made available for public inspection (Article 27-14 of the FIEA). A person who submits a Tender Offeror's Answer containing a false statement is subject to the punishment of imprisonment with work for not more than five years, etc. (Article 197-2(vi) and Article 207(1)(ii) of the FIEA), and a person who fails to submit a Tender Offeror's Answer is subject to the punishment of imprisonment with work for not more than one year, etc. (Article 200(x) and Article 207(1)(v) of the FIEA).

Q15.

How long is the Tender Offer Period under the FIEA?

A1.

The FIEA provides that the Tender Offer Period should be decided by the Tender Offeror as a period between 20 business days to 60 business days (Article 27-2(2) of the FIEA; Article 8(1) of the FIEA Enforcement Order).

2.

The Tender Offer Period is prescribed on a business day basis because if a Tender Offer is conducted during a period when there are consecutive holidays, the management of the Subject Company may have little time to make a counterproposal, etc., and it may impede investors and shareholders from acquiring sufficient information or securing sufficient time to make careful consideration.

Q16.

Why is it that there is an arrangement to allow the Subject Company of a Tender Offer to request extension of the Tender Offer Period?

A1.

If a Tender Offeror sets a short Tender Offer Period, and particularly if the management of the Subject Company is against the Tender Offer with such a short Tender Offer Period, it may be impossible to secure sufficient time for the management to appropriately present a counterproposal, etc. to investors and shareholders and for investors and shareholders to appropriately make careful consideration and a decision based on it.

2.

If the Tender Offer Period has been set shorter than a certain period by the Tender Offeror, and the Subject Company states a position in opposition, etc. to the Tender Offer, the Subject Company may request extension of the Tender Offer Period in the Subject Company's Position Statement since a certain period of time will be required to present a counterproposal, etc. to investors and shareholders (Article 27-10(2)(ii) of the FIEA).

Q17.

What will happen to the Tender Offer Period if the Subject Company of a Tender Offer requests extension of the Tender Offer Period?

A1.

If the Tender Offer Period initially set by the Tender Offeror is short (shorter than 30 business days), and the Subject Company requests extension of the Tender Offer Period in the Subject Company's Position Statement, the Tender Offer Period will be extended to a certain period (30 business days) (Article 27-10(3) of the FIEA).

2.

The specific number of days for which the Tender Offer Period is extended is 30 business days, which is half of the maximum Tender Offer Period of 60 business days, given that the period is for the Subject Company to appropriately present a counterproposal, etc. to investors and shareholders in the case of a hostile Tender Offer (Article 27-10(3) of the FIEA; Article 9-3(6) of the FIEA Enforcement Order).

3.

If the Subject Company requests extension of the Tender Offer Period, the period is uniformly extended to 30 business days, and the Subject Company cannot choose the period to be extended.

4.

From the viewpoint of informing shareholders and investors of the possibility for the requesting of extension and of the correct Tender Offer Period, the FIEA provides for the following procedures:

(i)

if the Tender Offer Period is shorter than 30 business days, the Tender Offeror must clearly indicate that the period may be extended in the Public Notice for Commencing Tender Offer (Article 27-3(1) of the FIEA); and

(ii)

if the Subject Company states that it requests extension of the period in the Subject Company's Position Statement, it must make a Public Notice of Request for Period Extension by the day following the 10th business day from the day of the Public Notice for Commencing Tender Offer (Article 27-10(4) of the FIEA; Article 9-3 of the FIEA Enforcement Order; Article 25-2 of the Cabinet Office Ordinance on Disclosure for Tender Offer by Non-Issuer).

Q18.

In what kind of cases is the Tender Offeror obligated to purchase all tendered shares?

A1.

If the total number of the Share Certificates, etc. Offered to Sell exceeds the Number of Share Certificates, etc. Planned to be Purchased, the Tender Offeror is allowed to refrain from making Purchase, etc. of all or part of the portion in excess based on the method of proportional distribution (allowing of partial purchase).

2.

Meanwhile, if the Share Certificates, etc. Holding Rate after a Tender Offer exceeds a certain proportion, it could lead to a possibility of delisting, etc., and minor shareholders who have remaining shares at hand will be put into a considerably unstable position.

3.

Based on such an idea, if the Share Certificates, etc. Holding Rate of the Tender Offeror after the Tender Offer combined with that of its Specific Interested Parties totals two-thirds or more of the outstanding total, the Tender Offeror is not allowed to make a partial purchase, and must conduct settlement procedures for all of the Share Certificates, etc. Offered to Sell (obligation to purchase all tendered shares) (Article 27-13(4) of the FIEA; Article 14-2-2 of the FIEA Enforcement Order).