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Japan needs real merger reform and disclosure

Protectionist business interests risk derailing Japan's merger reforms to allow foreign companies to make non-hostile acquisitions in the country. M&A adviser Nicholas Benes argues that meaningful change is essential if Japan is to raise its woeful levels of foreign investment.

This article appears courtesy of International Financial Law Review

If legislators proposed a reform to restore a level competitive playing field, but then immediately grabbed back 99.8% of it in the fine print and continued discriminating against a section of the market, it would be very difficult to trust them again.

But this is what Japan is poised to do with its foreign direct investment (FDI) policy and its laws governing so-called cross-border stock swaps. It is an exceedingly poor way to attract investment.

It seems a small group of business interests is pressuring Japan's Ministry of Justice (MoJ) to draft the implementing regulations for Japan's new Company Law in a way that would effectively shut out more than 99.8% of foreign public companies from big cross-border mergers executed through stock swaps (technically known as triangular mergers).

In January 2003 prime minister Junichiro Koizumi took the laudable and courageous step of announcing a national goal to double the cumulative base of FDI in Japan over the next five years, from its current level of just over 1% of GNP to a level over 2% (most developed nations in the OECD are in the 20-30% range).

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