PLC - FSA of Japan provides clarification regarding the application of tender offer rules Page 1 of 3

FSA of Japan provides clarification regarding the application oftender offer rules
Resource type: Legal update: archive
Status: Published on 04-May-2010
Jurisdiction: Japan

This article is part of the PLC Global Finance April 2010 e-mail update for Japan.
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At the end of March 2010, the Financial Services Agency of Japan published its views (in Q&Aformat with additional commentaries) on the application of the tender offer rules contained in theFinancial Instruments and Exchange Law (FIEL) to shares, call options and certain other securities(relevant securities). The views expressed by the FSA apply equally to acquisitions or offers ofrelevant securities , by or to, non-Japanese entities, as well as Japanese entities. This article sets
out the key points from the FSA.

At the end of March 2010, the Financial Services Agency of Japan (FSA) published its views (inQ&A format with additional commentaries) on the application of the tender offer rules contained in
the Financial Instruments and Exchange Law (FIEL) to shares, call options and certain othersecurities (relevant securities). The views expressed by the FSA apply equally to acquisitions oroffers of relevant securities , by or to, non-Japanese entities, as well as Japanese entities.
The key points from the FSA are set out below.

M&A
Generally, there is no need to purchase by tender offer where either a company or a shareholderof such company receives relevant securities as a result of the entrance by the company into amerger, share exchange or other organisational-change type M&A transaction.
However, transfers relevant securities that are made in the course of an M&A transaction but which
effectively constitute a negotiated sale and purchase of the relevant securities (for example, acompany split under which relevant securities in a third company are the only transferred assets)
are subject to the tender offer rules.

Exercise of options
Generally, the tender offer rules apply to the transfer of relevant securities under the exercise of acall or put option (the purchase of a call option itself is also subject to the tender offer rules but thesale of a put option is not). Though the FSA has stated that the tender rules "generally" apply insuch situations, it has not clarified the circumstances in which they do not apply.

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2011/03/02

PLC - FSA of Japan provides clarification regarding the application of tender offer rules Page 2 of 3

Indirect holdings of relevant securities
The tender offer rules will apply to the purchase of relevant securities in a company (even if notlisted) which holds relevant securities in the target company, when both:
By taking into account the substance of the intermediate holding company and factors relating
to substantial control, the purchase of the relevant securities is substantially the same as apurchase of relevant securities in the target company.
Other existing shareholders in the target company have not been provided with an opportunity
to sell the relevant securities.

Redemption of partnership interests in kind
The making of distributions in kind of relevant securities that constitute partnership assets on
dissolution of the partnership is not subject to the tender offer rules as long as the decision to
distribute the relevant securities is not taken by the partner who receives them, but by themanaging partner.
However, such a distribution will be subject to the tender offer rules where either:
The partner who accepts the distribution does so voluntarily (for example, after negotiation
with the managing partner).
The partnership agreement originally provided that the partnership may acquire the relevant
securities and distribute them to each partner.
The same treatment applies to the redemption of relevant securities in kind when a company
dissolves.

Taking security interests in relevant securities
Granting of security interests. Taking security interests in relevant securities is generally not
subject to the tender offer rules; provided that both:In the case of an assignment for security, the assignee is in substance merely the holder of asecurity interest and not an ownership interest (for example, in the applicable book-entry
system the assignee is described as a "special shareholder" on the assignment).
The granting of the security interest is not made to circumvent the tender offer rules.
Enforcement of (already granted) security interests. Enforcement of security interests by wayof effecting:Transfer of the ownership from the grantor to the security interest holder is not subject to thetender offer rules.

http://uk.practicallaw.com/5-502-2122

2011/03/02

PLC - FSA of Japan provides clarification regarding the application of tender offer rules Page 3 of 3

A sale of the ownership from the security interest grantor to a third party is subject to the rules.

Resource information
Resource ID: 5-502-2122
Published: 04-May-2010
Products: PLC Cross-border, PLC Global Finance, PLC US Law Department

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