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Amendment Of The Anti-Monopoly Act Of Japan And Its Impact On Mergers And Acquisitions.

Article Excerpt
On June 3, 2009, the Japanese Diet enacted a bill to amend the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (the "Anti-Monopoly Act" and, as amended, the "Amended Act"), promulgated as of June 10, 2009. The Amended Act will become enforceable on a date to be prescribed by the Cabinet Order within one year from the date of promulgation.1

Among the amendments under the Amended Act (the "Amendments") 2 are revisions of the business combination regulations that are expected to have a significant impact on competition reviews of mergers and acquisitions, making Japanese business combination regulations more consistent with international standards. For example, the Amendments introduce a system of preclosing notification to the Japan Fair Trade Commission ("JFTC") for share acquisitions; thoroughly revise the notification thresholds for business combination transactions and uniformly apply notification thresholds based on domestic revenue rather than the previous asset-based approach; adopt a new concept of the "Corporate Group" that will apply, for example, to the calculation of aggregated domestic revenue; and introduce definitions for "subsidiaries" and "parent companies" constituting a Corporate Group.

More specifically, by increasing the notification thresholds, the Amendments are expected to narrow the scope of transactions that will be subject to notification requirements. However, since the same notification thresholds will be applied without distinction to both domestic and foreign companies, it is anticipated that the number of international mergers and acquisitions subject to notification will increase. Further, the rules governing notification of share acquisitions involving shares owned or acquired by partnerships will be streamlined by clarifying which entity in such transactions is deemed to be a shareholder.

In this Commentary, we outline the revisions of business combination regulation under the Amendments.

Introduction of Pre-Closing Notification System for Share Acquisitions

Transition from Post-Closing Reporting to Pre-Closing Notification System. Paragraph 2 of Article 10 of the existing Anti-Monopoly Act (the "Existing Act") provides for post-closing reporting of share acquisitions if prescribed notification thresholds based on the value of total assets of the relevant companies are exceeded. In contrast, the Amendments introduce a pre-closing notification system for share acquisitions in line with the requirements already in place for other types of business combination transactions.

The rationale behind the Existing Act's establishment of a pre-closing notification system for mergers and business or asset acquisitions, while applying a post-closing reporting system for share acquisitions, is that while it is difficult to dissolve a structurally integrated business combination created through a merger, it is less difficult to restore competition in the market through subsequent sale of shares if a share acquisition is found to violate the Anti-Monopoly Act.

However, given that, in practice, it is not always easy to divest the shares once acquired, the ban on establishing holding companies has been lifted, and share acquisitions are frequently and commonly used in the business combinations, it is difficult to justify continuing the different regulatory treatment of mergers and business or asset acquisitions on the one hand, and share acquisitions on the other. Additionally, it is viewed as important to ensure the consistency of Japanese business combination regulations with those of other major jurisdictions, such as the U.S. and EU, which apply a pre-closing notification system for all business combination transactions regardless of the form of a transaction. Along with the adoption of a pre-closing notification system for share acquisitions, the notification thresholds will be revised as described in Table 1 below.3

The revision of notification thresholds seeks to identify transactions that would warrant a substantive review and enable the JFTC to review both domestic and international mergers and acquisitions that pose a substantial likelihood of affecting competition in Japanese markets, by applying the same notification thresholds to transactions by non-Japanese entities as those applicable to transactions between domestic companies. Thus, it is expected that the number of international transactions subject to pre-closing notifications will...

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