Japan tightens foreign takeover rules

Japan tightens foreign takeover rules


Tokyo: Japan will tighten rules for foreign takeovers of a broad range of steel, electronics and other companies to stem the outflow of defence-related technology, its first intervention of this kind in 16 years.

From 28September the Financial and Trade and Industry Ministries will review manufacturers of 137 high-tech products with potential military applications to see whether foreign control of stakes of more than 10% might pose a threat to national security.

The list of products includes certain types of specialty steel, titanium alloy, machine tools, batteries, optical fibres and sensors as well as sectors like arms, nuclear power equipment and aircraft that are already subject to controls.

Such products are made by most of Japan’s big steel, electronics, machinery and basic materials firms, including Nippon Steel Corp, Daido Steel Co, Sony Corp, Toray Industries Inc and Fanuc Ltd

The new rules, approved by the Cabinet this week, require foreign companies and funds to notify the Bank of Japan 30 days in advance of their plan to purchase a stake of 10% or more in Japanese listed companies manufacturing such products.

Foreigners should also notify the central bank when they buy more than one share of unlisted producers of such items.

Some analysts worry the new rules could be used to block foreign investors’ attempts to buy Japanese companies, despite the country’s pledge to double incoming foreign direct investment by 2010.

“This is a wonderful example of technocrats doing that they are good at -- imposing rules and regulations," said Jesper Koll, president of investment advisory firm Tantallon Research Japan.

Some other analysts say the notification period of 30 days is too long, worried about possible leaks of investment plans during the process.

Kenju Watanabe, a mergers and acquisitions lawyer at Skadden, Arps, Slate, Meagher & Flom LLP, earlier told Reuters that the evaluation process should involve officials beyond the Trade Ministry and include perhaps the Prime Minister’s Office to ensure fair judgement.

The ministry is seen as being close to Japan’s industry. The rule changes are also seen as making public support crucial for foreign investors taking over Japanese companies. This could force buyers to consider forming alliances or joint ventures with local partners, lobbying policy makers or waging media campaigns.

The government has said the reform is aimed at preventing terrorists and countries unfriendly to Japan from obtaining key technologies and would not hinder ordinary M&A activity.