By Makiko Yamazaki
TOKYO (Reuters) – Activist fund Oasis Management has asked the Tokyo high court to take a decision on how courts compute fair valuations in M&A deals, a source said, in a move that could set a precedent in Japan on how companies are valued during litigation.
A change in the court’s fair valuation method, currently not fully aligned to market practices, could give minority investors fresh ammunition to challenge deals where a major shareholder acquires the rest of a company at a lean premium – as Oasis says Itochu Corp did with FamilyMart in a 2020 acquisition.
Just last month, the Tokyo district court ruled Itochu’s tender offer to buy the convenience store chain was too low.
Hong Kong-based Oasis has filed an appeal and asked the Tokyo high court to use the discounted cash flow (DCF) technique based on expected future cash flows to determine the fair price of a deal, the source, who has knowledge of the matter, said on condition of anonymity as the information is not public.
Courts currently rely mostly on average market share prices over a certain period of time to settle legal fights over fair acquisition prices, mergers and acquisitions (M&A) experts say.
The common market practice is to use both methods.
Oasis declined to comment. Itochu directed questions to FamilyMart. A spokesperson for FamilyMart reiterated its stance that the Itochu deal value had been decided in a fair manner.
The Tokyo high court said it could not immediately comment.
Oasis’ appeal comes on the heels of the decision by the Tokyo district court that Itochu’s 2020 offer for the shares of FamilyMart it did not already own should have been 13% higher.
The district court ruled on March 23 that the price should have been 2,600 yen ($19.32) per share, instead of the 2,300 yen offered, according to a court document seen by Reuters.
The court added that the independent committee at FamilyMart had conceded unreasonably to pressure from Itochu, FamilyMart’s major shareholder at the time, to keep the offer price low.
The financial adviser to FamilyMart’s independent committee had suggested a range of 2,472-3,040 yen using the DCF model, the court document shows.
FamilyMart has appealed the district court decision, under which it would be required to pay an additional 300 yen per share to shareholders who sought a higher deal price.
($1 = 134.5600 yen)
(Reporting by Makiko Yamazaki, additional reporting by Ritsuko Shimizu; Editing by Himani Sarkar)