how to start your business in japan (m&a)
TRANSCRIPT
HOW TO START YOUR BUSINESS IN JAPAN – M&A
Yuki Sato
Attorney at Law Admitted in Japan and New York
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
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M&A in Japan
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Recent M&A Trends in Japan
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From Recof Merger and Acquisition Database (https://www.marr.jp/marr/product/recofdb.html)
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
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How to start/expand your business in Japan?
Distributor
Branch
Subsidiary
☆ M&A
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Types of M&A Transaction
Merger
Company Split
Asset Transfer
(Share Exchange)
Share Purchase
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Company Split
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[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
Asset Purchase
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[Before Asset Transfer] [After Asset Transfer]
Company A
Shareholders
Company B
Asset Transfer
Shareholders
Company A
Shareholders
Company B
Cash
Shareholders
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
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M&A Process
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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】
M&A Process (Continues)
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Negotiation of the prices, etc.
LOI
Due Diligence
Negotiation for the Final
Agreement
M&A Agreement
Fulfillment of
obligations/CPs
Closing
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.
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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
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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
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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
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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
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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
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Post Closing
Amendment of Registration (corporate registry and real estate registry)
Obligation to cooperate
Adjustment of the price, earn out provision
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Addendum - Resent Trends in Japan
Enforcement of Corporate Governance Code
Compliance
Still many officers and employees who are not familiar with cross-border transactions
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Appendix
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Merger
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[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
Share Purchase
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[Before Asset Purchase] [After Asset Purchase]
Company B
Shareholders
Company A
Share Transfer
Company B
Shareholders
Company A
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If you have any questions, please do not hesitate to contact us! Yuki Sato 81-3-3591-7148 [email protected] [email protected] https://twitter.com/YukiSatoLaw
Q&A Session