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Japan Inc ditches takeover defenses amid shareholder criticism

Number of companies with safeguards against hostile bids down 40% from 2008

TOKYO — More listed Japanese companies are scaling back takeover defenses in response to mounting criticism from investors, who view the measures as protecting management.

As of May 21, 342 Japanese companies had anti-takeover measures in place, 44 fewer than at the end of 2018 and a 40% drop from the peak in 2008, according to Recof, a Tokyo-based advisory company.

“The views of domestic and foreign institutional investors have shifted,” said Katsuhiro Miyamoto, executive vice president of Nippon Steel, which decided to eliminate takeover defenses.

The company introduced the safeguards in 2006 amid the global reorganization of steelmakers. Nippon Steel’s decision prompted other Japanese companies to follow suit, but the company has since decided to drop the scheme amid growing complaints from shareholders.

Janome Sewing Machine announced on May 21 that it would ditch its takeover defenses, while Mitsubishi Estate, Mitsubishi Materials and Toto are among a slew of companies that have decided to do the same.

Even some companies that have retained anti-takeover measures can no longer ignore shareholders’ changing attitudes. About 40% of Heiwa Real Estate‘s shareholders voted against a proposal to extend takeover defenses at last year’s meeting, while more than 40% at Tobu Railway and Matsumotokiyoshi Holdings also opposed the defenses.

This year’s shareholders meetings could see more companies facing the same winds of change.

Japan’s Stewardship Code implemented by the Financial Services Agency in 2014 calls on institutional investors to keep a watchful eye on the management of companies in which they are invested. This has prompted shareholders to vote against anti-takeover measures, which they see as aimed at protecting management.

The voting guidelines of many institutional investors oppose takeover defenses. Nomura Asset Management voted against all anti-takeover measures during meetings in the 2018 April-June quarter, as did Sumitomo Mitsui Trust Asset Management.

These kinds of defenses became popular after the hostile takeover bid by internet company Livedoor for Nippon Broadcasting System in 2005. The safeguards include allocation of share acquisition rights to existing stockholders if buyers do not follow the rules for large stock purchases.

Some companies, however, are sticking to their guns. Sumitomo Realty & Development announced that it would leave its defenses in place.

Fewer U.S. companies have been implementing takeover defenses, with only 4% of major American companies having “poison pill” plans in 2017, down from over 50% in 2005, according to U.S. proxy adviser Institutional Shareholder Services.

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