June 28, 2019 / 7:38 AM / 4 months ago

Japan overhauls buyout guidelines to protect minority shareholders

TOKYO, June 28 (Reuters) - Japan’s trade ministry has overhauled its guidelines for mergers and acquisitions to better protect minority shareholders in the case of management buyouts, a move that comes amid a renewed focus on shareholder rights in corporate Japan.

The recommendations, revised for the first time in 12 years, call for an independent committee to be set up by the target company in the case of management buyouts, to assess whether the deal is fair.

“Inevitably there is a conflict of interest between ordinary shareholders and corporate management in a transaction where management buys shares from other shareholders,” the Ministry of Economy, Trade and Industry (METI) said in the new guidelines published on Friday.

“Management can benefit directly by lowering the price it pays to shareholders who are the sellers.”

The independent committee should consist of outside directors as well as experts to review the transaction terms, the ministry said. The guidelines should also apply to transactions where a company with a majority control of an affiliate attempts to buy that affiliate, the ministry said.

Activist investors have been gaining momentum in Japan and have complained about what they see as poor performance as well as returns from cash-hoarding firms, with Prime Minister Shinzo Abe advocating strengthening corporate governance.

But companies are often able to ignore minority investors, given the longstanding practice of cross-shareholding, where firms hold stakes in each other to cement business ties. (Reporting by Junko Fujita; Editing by David Dolan and Muralikumar Anantharaman)

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