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Messages from "Economic Trend", September 2005

Anti-takeover Defenses

Junich Ujiie
Vice Chairmen of the Board of Councillors, Nippon Keidanren
Chairman, Nomura Holdings, Inc

The recent battle between Livedoor and Fuji Television Network over control of Nippon Broadcasting System prompted many listed Japanese companies to take a closer look at anti-takeover defenses.

Corporate executives in Japan now realize that their company's shares could be suddenly swept up, leaving them with a new major shareholder who could force considerable changes on management. For top-level managers working to formulate long-term strategies, this is a situation they do not want to face. As such, it is only natural that interest has grown recently in regards to anti-takeover defenses as a way to protect companies from the sudden threat of a hostile bid.

At the same time, however, it is unfortunately true that some corporate executives lack a clear strategy or vision for their company and are unable to fully capitalize on the resources at their disposal. In such cases, hostile takeovers can set the scene for these executives to be forced out and ultimately the company's shareholders and employees profit from this. It is for this reason that institutional investors and others have raised concerns regarding excessive anti-takeover defenses.

Fortunately, the court handed down a ruling regarding poison pills on the back of the battle over Nippon Broadcasting. In addition, the stock exchanges; the Ministry of Economy, Trade and Industry; and the Ministry of Justice have set out guidelines that clearly define what is regarded as reasonable in terms of anti-takeover defenses. In short, companies can introduce defensive tactics after receiving prior approval from shareholders, making it possible to fend off corporate raiders such as greenmailers at any time.

Looking at the court's decisions, it should be possible to defend a company against a hostile bid by issuing shares via private placement to a friendly third party, even if anti-takeover defenses have not been put in place beforehand. The best, strongest defense against a takeover bid, however, is to continually improve corporate value and maintain a share price that reflects the company's true capabilities.

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