Publication Date: February 17, 2020
The recent boom in Japanese deal-making is drawing the attention of global risk arbitrage investors. In terms of size, volume and liquidity, excluding FCA / PSA, the Japanese public M&A universe is currently overtaking that of the Europe. While risk arbitrage spreads in Japan are tight, a function of deal certainty and interest rates, activity is exciting. In this report, we explore a common trend - minority squeeze-outs - whereby a controlling shareholder seeks to take private its Japanese publicly traded subsidiary via a two-step transaction. From speaking to lawyers and academics, we assess the investment feasibility of Japanese back-end trades for minorities, akin to German domination agreements and squeeze-outs, and decipher whether dissident funds can profit from exercising appraisal rights in Japanese courts. Our focus here is the LINE / Softbank & NAVER transaction but similar considerations and strategies apply to the pending buyouts of Hitachi Chemical, Hitachi Hi-Tech, Keihin, Mitsubishi Tanabe, NuFlare, Parco and Showa, among others. We take a step further with LINE and analyse vertical antitrust risks due to data accumulation and consider external factors that may lead to minority shareholders receiving an increased offer.
1. Deal Structure and a Sound Strategic Rationale 2. Data Accumulation and Antitrust: The Japanese FTC Review 3. Japanese Fair M&A Guidelines and Shortfalls by Advisers 4. Optionality Through Peer Performances, ZHD Stock Terms 5. Deal Certainty and Squeeze-Out Options for the Buyers 6. The Back-End: Dissenters, Court Appraisal Proceedings 7. Back-End Considerations for LINE and Pitfalls from Precedents 8. Risk Arbitrage Trading Strategies Appendix A. Japanese M&A Framework
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