M&A section

1. HOW TO START YOUR
BUSINESS IN JAPAN – M&A
Yuki Sato
Attorney at Law Admitted in
Japan and New York

2. Topic
1. M&A in Japan
 Types of M&A Transaction
 M&A Process (LOI, DD, Reps and
Warranties and Post Closing)
2. Investment in Real Estate in Japan
2

3. M&A in Japan
3

4. Recent M&A Trends in
Japan
4
From Recof Merger and Acquisition Database (https://www.marr.jp/marr/product/recofdb.html)

5. 5 Unique Features of M&A
in Japan
1. Company Split
2. No Duty of Loyalty of Controlling
Shareholder
3. Longer Time Frame
4. Special Act to protect Employees
through M&A Process
5. No Established Court Precedents re.
Reps and Warranties
5

6. How to start/expand your
business in Japan?
Distributor
Branch
Subsidiary
☆ M&A
6

7. Types of M&A Transaction
Merger
Company Split
Asset Transfer
(Share Exchange)
Share Purchase
7

8. Company Split
8
[Before Company Split] [After Company Split]
Company A
Shareholders
Company B
Absorption – type
Company Split
Shareholders
Company A
Shareholders
Company B
Cash, Shares, etc.
Shareholders

9. Asset Purchase
9
[Before Asset Transfer] [After Asset Transfer]
Company A
Shareholders
Company B
Asset Transfer
Shareholders
Company A
Shareholders
Company B
Cash
Shareholders

10. Pros and Cons of Each Method
Need Stock
Corporation in
Japan?
Protection
(Notification)
of Creditors
Transfer of
Employment
Contracts
Tax Issues
Merger Yes Yes*1 Yes Taxation on gain from the
transfer of property. However,
in “qualified merger”, you can
defer recognizing capital gains.
Company
Split
Yes Yes*1 Yes, but restricted
by the special act.
Asset
Purchase
No Yes*1 Also
needs
consents
from all
contractual
parties.
Yes, but restricted
by the special act.
Heavier compared with
Corporate split (e.g.
consumption tax, real estate
acquisition tax, real estate
registration tax)
Share
Purchase
No No
10

11. M&A Process
11
Planning of Sale of a company
Searching for a Buyer
Preparation of Outline of the Company for
the Potential Buyer(s)
Receipt of Confidentiality Pledge
Preliminary Due Diligence Preliminary Due Diligence
Submission of Confidentiality Pledge
Research on the Company from Sources
other than the Target Company
Selecting a Target Company
Hearing from the Target
Company
Planning of M&A
【Seller】 【Buyer】

12. M&A Process (Continues)
12
Negotiation of the prices, etc.
LOI
Due Diligence
Negotiation for the Final
Agreement
M&A Agreement
Fulfillment of
obligations/CPs
Closing

13. Letter of Intent
Contents:
• Intention to purchase a target company
• Purchase price with certain conditions
• Scope of Due Diligence
• Exclusivity
Q. Legally binding in Japan?
A. Depending on wordings of each LOI. You
may have a duty to negotiate in good faith.
13

14. Legal Due Diligence –
Major Issues
1. License, Government Approval
2. Major Contracts (e.g. Change of
Control)
3. Product Liability
4. FCPA and any other anti-bribery laws
5. Regulation including Merger Control
14

15. Legal Due Diligence –
Major Issues (Continues)
6. Labor Law Issue (Act on the Succession to
Labor Contracts upon Company Split)
7. Intellectual Property (especially,
employees’ invention)
8. Anti-social Forces
9. (If BtoC business) Personal Information
Protection Act, Act against Unjustifiable
Premiums and Misleading
Representations
15

16. How to Handle Findings during
Legal Due Diligence
1. Including them in representation and
warranties
2. Including them in covenants
3. Including them in CPs
4. Adjustment of the price
5. (Special) Indemnification
16

17. Representations and
Warranties
 Statement that certain facts are
true and accurate at the signing
date and closing date backed by
indemnity
 Functions: Allocation of Risks,
Disclose of necessary information
17

18. Representations and
Warranties
 Natures of Reps and Warranties in
Japan?
 Our suggestion based on recent
court precedents:
• Tokyo District Court, January 17, 2006
• Osaka District Court, July 25, 2011
18

19. Post Closing
 Amendment of Registration
(corporate registry and real estate
registry)
 Obligation to cooperate
 Adjustment of the price, earn out
provision
19

20. Addendum - Resent Trends in
Japan
 Enforcement of Corporate
Governance Code
 Compliance
 Still many officers and employees
who are not familiar with cross-
border transactions
20

21. Appendix
21

22. Merger
22
[Before Merger] [After Merger]
Company A
Company B
U.S.
Japan
Shareholders
Company C
Company A
Company B
Shareholders
*Company A can squeeze out former
Company C’s shareholders by giving cash
for considerations.
100% 100%
Merger
Shareholders

23. Share Purchase
23
[Before Asset Purchase] [After Asset Purchase]
Company B
Shareholders
Company A
Share Transfer
Company B
Shareholders
Company A

24. 24
If you have any questions, please do not hesitate to
contact us!
Yuki Sato
81-3-3591-7148
yuki.sato@torachu.com
sato@namura-law.jp
https://twitter.com/YukiSatoLaw
Q&A Session