The Enigma of Hostile Takeovers in Japan: Bidder Beware

For over two decades, Japan has had all of the essential elements that leading academics and sophisticated investors have assumed to be sufficient for a country to develop an active market for hostile takeovers (i.e., dispersed shareholder ownership, depressed share values, and a United Kingdom or United States inspired regulatory framework). This has not gone unnoticed. For decades, leading academics and prestigious pundits have repeatedly predicted the imminent arrival of a wave of successful hostile takeovers in Japan. Based on the same prediction, but with much higher stakes, sophisticated investors have risked billions of dollars. History has consistently proven this prediction wrong — leaving a cadre of bewildered academics, embarrassed pundits, and bitter investors in its wake. How could so many leading academics, prestigious pundits, and sophisticated investors be so terribly wrong (for decades) about Japan’s market for hostile takeovers? This is the enigma of hostile takeovers in Japan, which we seek to explain in this Article.We argue that, in applying abstract theories derived from the Anglo-American experience, Western observers have neglected to account for local, idiosyncratic, Japanese factors that have stifled the market for corporate control in Japan. First, Japan transcends and complicates the conventional dispersed/concentrated shareholding dichotomy, as shown by the presence of dispersed stable-shareholders who have consistently rallied in support of incumbent management against hostile acquirers. Second, a corporate and shareholder culture that remains dominated by lifetime employee controlled corporate boards adds to the resilience of Japanese companies against hostile takeovers. Third, contrary to the belief of Western scholars, Japan’s law on defensive measures cannot be easily compared to the US or UK hostile takeover regimes, as it has developed idiosyncratic features through judicial precedent and corporate practice that have a distinctively anti-takeover flavour. Ultimately, the story of the absence of hostile takeovers in Japan is a cautionary tale to all comparative corporate scholars and foreign investors who underestimate the importance of context: apply Anglo-American generalizations without adequate local knowledge at your own peril.*A condensed and updated version of this draft Article will be published as: Dan W. Puchniak & Masafumi Nakahigashi, ‘The Enigma of Hostile Takeovers in Japan: Bidder Beware’ in Umakanth Varottil & Wan Wai Yee, Comparative Takeover Regulation: Global and Asian Perspectives (Cambridge University Press, forthcoming).