Future Prospects of Takeovers in Japan Analyzed from the View of Share-Ownership Structures and Laws in Comparison with the United States and the European Union


Takeovers, especially hostile takeovers, have been less prevalent in Japan than in the United States and the European Union, despite the fact that Japan has similar takeover regulations. Moreover, Japan seems to have no legal barriers to takeovers like the enhanced defensive measures adopted in the United States and the Member States of the European Union (the “Member States”). It is generally believed that Japanese share-ownership structures, characterized by cross shareholding structures called mochiai (“CSSs”) (where Japanese business corporations and their main financial banks constitute business groups by holding each other’s shares), have frustrated takeover activities in Japan.  Recently, this situation has shown outward signs of change. It was reported that CSSs have begun to dissolve for several reasons, including a change in accounting standards that required companies to evaluate their cross-held shares on a market price basis or to recognize impairment losses if the corporation determined that the declining share price would not recover. If Japanese corporations and their main financing banks sell their cross-held shares under such pressures, it is expected that takeover activities in Japan will increase.  This Comment explores the future prospects of takeovers in Japan. There are many factors that determine the extent to which certain markets experience takeover activity. It is clear that the laws and regulations concerning takeovers, defensive measures, and share-ownership structures, such as CSSs, significantly affect takeover activities. Thus, this Comment focuses its analysis on those laws, regulations and share-ownership patterns and structures, although it also touches on other factors that may affect takeover activities. The Comment compares Japanese share-ownership structures and laws with those of the United States (the country with the most active takeover market in the world)–and with those of the European Union and its Member States (some of which have centralized share-ownership structures, which can present a barrier to takeovers just as CSSs pose a barrier to takeovers in Japan).