30 March 2023
Asset Value Investors (AVI) Submits Opinions on Best Practices for Takeovers to the
Fair Acquisition Study Group of Ministry of Economy, Trade and Industry (METI)
Asset Value Investors ("AVI") (CEO & CIO: Joe Bauernfreund) submitted opinions on best practices for takeovers to the Fair Acquisition Study Group, in response to the request made by METI as a public consultation announced on 22nd February 2023 (AVI responds to METI consultation in Japan - Asset Value Investors).
AVI believes that the uncertainties left behind by the recent judicial decisions on takeover defences have had a detrimental effect on hostile acquisitions and unsolicited takeover bids in Japan. There are real concerns that takeover defence measures may be abused by management to protect their own interests and that they might lead to complacency towards growing corporate value.
If takeover defence measures continue to be used in Japan, we hope that clear and reasonable guidelines will be adopted to alleviate concerns over their arbitrary use to protect management. With this in mind, we have put forward our opinions on the key issues being discussed by the Study Group (details attached in the link above).
The summary of our opinions:
l Less emphasis should be placed on management's assessment of corporate value when considering the benefits of a potential takeover, and at least as much importance should be placed on shareholders' assessment of corporate value by considering their views more effectively.
l In all cases a shareholder vote should be required to trigger anti-takeover measures to avoid the risk of arbitrary use by management.
l Shareholders that are deemed allegiant, and have conflicting relationships with management, should be considered to be excluded when checking interests of shareholders for implementing a takeover defence measure.
l When voting on the adoption of takeover defence measure, where the acquirer has an existing ownership, their vote should only be disregarded in exceptional circumstances, such as the rapid acquisition of shares in the open market.
l Upon receipt of a takeover proposal by the management, a prompt report should be made to the board of directors prior to any initial evaluation of its seriousness or validity.
l In cases where a takeover proposal was rejected, detailed objective reasons as to why the proposed acquisition would not enhance corporate value and how the incumbent management would provide greater value should be disclosed.
l Discouraging hostile acquisitions or creating an unreasonable delay by endlessly asking the acquirer to provide information, should not be allowed.
l The evaluation period which prevents acquisitions from moving forward should be limited to 30 working days maximum to be consistent with the duration considered sufficient for the passive market checks for management buyouts.
l The Study Group should discuss the positive elements on hostile acquisitions made by financial buyers and discuss what should be required of them post- acquisition
Joe Bauernfreund, CEO of AVI, stated:
"A fairer and more transparent system for hostile and unsolicited takeover bids in Japan will allow for a more active takeover market that should led to enhanced corporate value for shareholders."
"We at AVI are encouraged that the METI study group recognises the positive impact that unsolicited takeovers can have in a healthy functioning market."
| Contact details: Daniel Lee, Head of Japan Research +44 20 7659 4809 daniel.lee@assetvalueinvestors.com |
Kaz Sakai, Senior Japan Analyst +44 20 7659 4818 kaz.sakai@assetvalueinvestors.com |
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AVI at a glance
AVI is an investment management company established in London, United Kingdom, in 1985, and AVI has invested in Japanese equities for more than 20 years. AVI manages AVI Global Trust (AUM: approximately JPY172bn (£1.1bn)), AVI Japan Opportunities Trust (AUM: approximately JPY27bn (£0.17bn)), etc., as of 31 January 2023. AGT and AJOT are public companies whose shares are listed and traded on the main market of the London Stock Exchange. The AVI-Managed Funds are characterised by the fact that they are closed-ended investment trust companies meaning that there are no restrictions constraining the length of the investment period. This means that, so long as AVI perceives an investment to be undervalued and has identified a catalyst for unlocking that value, AVI can continue to hold the investment indefinitely.
AVI has signified its commitment to the "Principles for Responsible Institutional Investors: Japan's Stewardship Code" (the "Stewardship Code") and, in accordance with its intent, engages in constructive "purposeful dialogue" (engagement) with management and board members in order to contribute to the enhancement of the corporate value and sustainable growth of the portfolio companies.
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