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Japan: Pass the pills (for defence)

Proxy season in Japan is in full swing, with hundreds of companies holding annual general meetings at the end of June, often on the same date. There is nothing new in that: Japanese companies began clustering shareholder meetings in this way years ago to avoid extortion by yakuza (Japan’s criminal gangs), who would threaten disruptive action unless they were paid off.

Sceptics claim that the clustering tactic is now being used to thwart genuine shareholder activists seeking to press their case for improved corporate governance. Whatever the truth, this year’s congested proxy season is especially noteworthy as the year of the poison pill defence scheme.

According to research by HSBC, by the end of 2006 a total of 172 companies in Japan had already installed some form of takeover defence mechanism since they were first permitted in 2004. HSBC reckons that as many as 350 Japanese companies are planning to introduce pills in this year’s round of meetings.

There appear to be several reasons for the move. First, M&A activity in Japan is on the rise. HSBC calculates that there were 2,776 M&A deals in Japan in 2006 compared with 621 in 1985. Of last year’s deals, 78% were purely domestic transactions and 64 were public takeover bids, all meaningful increases in activity over previous years. Growing by acquisition no longer carries the stigma in corporate Japan that it once did.

Second, the introduction of the so-called triangular M&A law in May is expected to increase foreign takeovers in Japan. The law permits foreign companies to merge Japanese companies with their existing Japanese subsidiary but using their own shares as consideration, which was previously forbidden.

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