By Makiko Yamazaki and Ritsuko Shimizu
TOKYO (Reuters) – Japan is “eager” to put together M&A guidelines that are seen as rational by investors and can help spur acquisitions in the world’s third-largest economy, a senior government official told Reuters, even as the effort has got off to a rocky start.
The Ministry of Economy Trade and Industry (METI) is hammering out a code of conduct for mergers and acquisitions (M&A) to promote more takeovers and crack down on “unreasonable” defence tactics that have worried investors both globally and at home.
Japanese firms are often seen as lacklustre acquisition targets, due partly to a perception of being indifferent to shareholders, something the government has long wanted to change to spur greater industry consolidation.
“We are eager to compile guidelines that would make sense to people in capital markets,” Genta Ando, METI’s corporate system division director, said in an interview.
“One factor impeding M&A within Japan is a general reluctance toward unsolicited takeovers,” he said, adding that many domestic companies were afraid of reputational risk – being seen as predatory – and that clearer guidelines could alleviate that.
“That is hampering industry consolidation and appropriate distribution of resources.”
Ando is in charge of administrative work for a panel set up by METI late last year that is looking at the best way to prevent conduct in acquisitions not aligned with global standards – for example when management spurns a credible takeover offer before notifying the board.
But the panel itself has already come under scrutiny, with domestic and overseas investors telling Reuters of their concern the 19-member body had no representatives from activist investors and was skewed instead toward lawyers and academics.
It also was the target of criticism last month, over a proposal that the desirability of potential takeovers should hinge on whether they enhanced the corporate value of the target company – without any reference to shareholders.
The criticism was “unexpected” said Ando. In response, the panel added a reference to shareholder interests alongside that of corporate value, as well as a line saying that the concept of corporate value should not be used for management entrenchment.
Investors were concerned that companies could use the issue of corporate value as an excuse to reject unsolicited bids outright, according to a report summarising the public opinions put forward to the panel.
Corporate value and shareholder value are not conflicting concepts, Ando said, noting that from investors’ perspective, corporate value equalled the combined total of shareholder value plus debt.
METI’s previous guidelines have mostly focused on principles for takeover defence, but there has been nothing on overall M&A procedures, a situation Ando said is “lacking balance.”
“We really appreciated the feedback,” he said.
(Reporting by Makiko Yamazaki and Ritsuko Shimizu; Editing by David Dolan and Susan Fenton)