EBC Press Release
November 14, 2006
EBC Rejects Media Reports Misrepresenting Cross-Border Stock Swaps in Europe
November 14, 2006 --- The European Business Council in Japan (EBC) expressed deep concern today about
misleading statements appearing in Japanese media reports last week and again this week on the use of stock swaps inmerger transactions in Europe.

“I am particularly surprised by an inaccurate media report on November.101,” said

EBC Chairman, Richard Collasse. “The report contains a statement maintaining that stock swaps can only be used inmerger transactions among companies of EU member countries. This implies that non-EU company shares cannot beused as consideration in a merger with a European Company in the EU. This is plainly incorrect.” Although the legal
situation in Europe is complex, the European Commission’s Takeover Directive (2004/25/EC), states clearly that at
the EU level, foreign company shares can be used with no restrictions in direct stock swaps.

“Equally disturbing,” Collasse continued, “is a so-called international comparison of the use of triangular mergers
reportedly based on data provided by the Keidanren.2 In that comparison, it was stated that triangular mergers are notpermitted in the UK and Germany.

Such a comparison of triangular mergers is simply not valid. Not only is it

technically possible to conduct triangular mergers in the UK, but just as in Germany and also now in France (afteradopting the EC Directive on September 18th, 2006), direct cross-border stock swaps with foreign shares is possibleand triangular mergers are NOT REQUIRED. The EBC has long been advocating the introduction of direct stock
swaps between foreign and Japanese stocks also in Japan, but also supported the triangular merger scheme as a secondbest approach to facilitating cross-border deals.

The only proviso on foreign stocks contained in the Take-over Directive is related to offer requirements under
take-over bids. An investor having acquired control of a certain shareholding (30% or more to be decided in MemberState legislation) of the stock in any given company is obliged to launch a full bid. If the securities offered do notconsist of liquid securities admitted to trading on a regulated market (normally meaning a stock market in theEuropean Economic Area) then the bid must offer a cash alternative. It does NOT require the securities to be listed inEurope, but merely that a cash alternative is offered. The provision could be perceived as similar to the appraisalrights (kaitori seikyuken) already introduced into the Japanese system.

The EBC fully shares the view of Ministry of Economy Trade and Industry (METI), the Keizai Doyukai, and theAmerican Chamber of Commerce in Japan (ACCJ) that the carefully-designed, cautious triangular merger scheme will
be a valuable tool for foreign and Japanese companies seeking friendly ways to merge. We can see no reason to makelisting in Japan a de facto mandatory restriction when boards of Japanese companies are already free to impose such acondition on a company basis. What is clear, is that if listing in Japan is made a de facto pre-condition for using
foreign stocks as consideration, the “cross-border” essence and indeed the very value of the triangular merger scheme
will be lost in terms of attracting capital, know-how and jobs to Japan.
1

Nihon Keizai Shimbun, November 10, 2006, Page 14; Asking About Issues on Triangular Mergers (translation);
Comments by Mr. Kenji Miyahara, Vice-chairman, Keidanren
2 Asahi Shimbun, November 10, 2006, Page 8; Smouldering Triangular Mergers (translation)________________________________________________________________________________
European Business Council in Japan
Sanbancho POULA Bldg. 2Fl. 6-7 Sanbancho, Chiyoda-ku, Tokyo 102-0075, Japan
Tel: 03-3263-6222; Fax: 03-3263-6223; E-mail: ebc@gol.com; Web: http://www.ebc-jp.com

EBC Press Release
November 14, 2006
Triangular Mergers Fact Sheet
Five ”safety measures” for target company boards and shareholders have been included in the Japanese triangularmerger scheme:

1. Foreign entities have to set up a company in Japan before they can use their stock as consideration in mergers
with Japanese companies. The foreign entity has to merge with the Japanese company through a domestic
subsidiary, the reason for calling it “triangular” in the first place. Direct Cross-border Stock swaps are notpermitted.
2. The board of the Japanese company itself must negotiate the merger agreement, and must approve the transaction
before it goes to shareholders. The board has the right to refuse any offer it does not like (granting only friendlydeals).
3. Because it must approve and negotiate the transaction itself, the Japanese board has the right to impose whateverrestrictions it wants on the consideration to be used in each deal (including requiring stocks to be listed in Japan,
or the provision of cash instead)
4. All Japanese boards are free to modify their company’s Articles of Incorporation to insert protective measures.
They could easily require in advance that a “tokushu ketsugi” should be needed in the case of stocks that are notlisted in Japan
5. In the case of triangular mergers, dissenting minority shareholders of the company being absorbed have “appraisalrights” (“kaitori seikyuuken”) to receive a "fair value" in cash, in an amount reflecting the post-deal synergies.

Of these five Japanese measures, the EC Takeover Directive contains provisions similar only to the fifth Japanesemeasure outlined in (5) above.

It aims for the protection of minority shareholders and applies when an investor has

acquired control of a certain share (e.g. 30% or more to be decided in Member State legislation) of the stock in any
given company. In such a case, the investor is obliged to launch a full bid and if the securities offered do not consistof liquid securities admitted to trading on a regulated market (normally meaning a stock market in the European
Economic Area) then the bid must include a cash alternative.

About the EBC
The European Business Council (EBC) in Japan is the trade policy arm of the 17 European national chambers ofcommerce and business associations in Japan.

Established in 1972, the EBC works to improve the trade andinvestment environment for European companies in Japan.

The EBC currently represents more than 3,000 local

European companies and individuals who are members of their national chambers of commerce.

Some 360 of thesecompanies participate directly in the EBC’s 29 sector-based committees.
For more information, please contact:
Mr. Jakob Edberg, EBC Policy Director: Tel: +81-3-3263-6224

E-mail: ebc@gol.com________________________________________________________________________________
European Business Council in Japan
Sanbancho POULA Bldg. 2Fl. 6-7 Sanbancho, Chiyoda-ku, Tokyo 102-0075, Japan
Tel: 03-3263-6222; Fax: 03-3263-6223; E-mail: ebc@gol.com; Web: http://www.ebc-jp.com