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- Merger Screening
1. What type of transactions are caught by the merger control regime?
1.1.1 Type of transactions that are caught by the merger control rules?
Different thresholds apply depending on the kind of transaction in question. However, the categorization is based on structures used in the Japanese Companies Act and it may not always prima facie be clear what category a transaction falls into.
The competition authority generally takes a formalistic approach and looks at the contractual format to break down the structure of the transaction. For example, a transaction that could be understood as a global transfer of business could be interpreted as a combination of multiple share acquisitions.
The following types of transactions are caught by the merger control rules:
- Share acquisitions if as a consequence of the acquisition, the acquirer’s holding of voting rights in the target exceeds either 20% or 50%;
- asset acquisitions, i.e. transfer of all or a substantial part of the business of another company, transfer of all or a substantial part of the fixed assets of another company, leasing of all or significant part of the businesses of another company, delegation of management regarding all or significant part of the businesses of another company, and contractual arrangements to share the profits and losses of another company;
- statutory mergers and demergers, and
- the interlocking of directorships.
Whereas the law on merger control applies to the interlocking of directorships, they are not subject to filing.
2. Establishing jurisdiction for notification of mergers
2.3 General thresholds
Merger filing is needed if:
- the turnover of the acquirer exceeded JPY 20,000,000,000 in Japan in the last financial year, and the turnover of the target exceeded JPY 5,000,000,000 in Japan in the last financial year.
In asset acquisitions, merger filing is needed if:
- the turnover of the acquirer exceeded JPY 20,000,000,000 in Japan in the last financial year, and the assets being acquired generated a turnover exceeding JPY 3,000,000,000 in Japan in the last financial year.
Statutory merger or demerger
Merger filing is needed if:
- the turnover of one of the undertakings concerned exceeded JPY 20,000,000,000 in Japan in the last financial year, and the turnover of at least one of the other undertakings concerned exceeded JPY 5,000,000,000 in Japan in the last financial year.
There are more detailed rules for statutory demergers.
Joint share transfer
When two or more companies create a new common holding company, merger filing is needed if:
- the turnover of one of the undertakings concerned exceeded JYP 20,000,000,000 in Japan in the last financial year, and the turnover of at least one of the other undertakings concerned exceeded 5,000,000,000 in Japan in the last financial year.
2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)
Banks are prohibited from acquiring more than 5% of the voting rights of another Japanese business.
Insurance companies are prohibited from acquiring more than 10% of the voting rights of another Japanese business.
Exceptions apply to both industries and the limits are subject to exemption by the competition authority.
2.5 Foreign-to-foreign mergers
2.5.1 Do any exemptions, special thresholds etc. apply to foreign-to-foreign mergers, i.e. where none of the undertakings concerned is domiciled in the jurisdiction?
Foreign-to-foreign transactions are caught by the Japanese merger rules.
3. Calculation and allocation of turnover, asset value, transaction value etc.
3.1 Relevant turnover
3.1.1 How is turnover defined (e.g. is income from other sources than "ordinary activities to be included, and how are rebates, taxes, internal turnover etc. treated)?
Turnover is defined to include both direct and indirect sales in and into Japan made by the company’s group in the last financial year, exclusive of intra-group sales.
3.3 Relevant undertakings for the calculation of turnover
3.3.1 The undertakings whose turnover is taken into account?
Turnover is calculated on consolidated group basis; specifically, for the acquirer that means the acquirer including group companies, and for the target that means the target entity(ies) and their subsidiaries, not including the entities remaining with the seller.
3.3.2 Shall the turnover of the existing seller be included in the target's group turnover?
The seller’s turnover is not included in the target’s group turnover.
and last updated on 20-03-2020 by
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