Japan’s First Poison Pill Case, Bulldog Sauce v. Steel Partners: A Comparative and Institutional Analysis

Abstract

This Article (I) provides an annotated translation  of and background for the first Japanese  Supreme  Court  case  concerning  hostile  takeovers  as  well  as  laws  related  to  the  case; (II) comments on this case in its immediate context; and (III) relates this case to  the American literature on hostile takeovers, a market for corporate control, and Japan’s  corporate  governance  and  legal  system.  The  case  applies  the  principle  of  shareholder  equality to a hostile takeover countermeasure involving what in effect was a greenmail  payment  to  the  acquirer.  The  countermeasures  were  approved  by  an  overwhelming  shareholder vote and compensated the acquirer for its shares by a formula that exceeded  its planned purchase price, so in accord with the principle of shareholders’ will and the  meaning behind the principal of shareholder equality, the Supreme Court found that the  countermeasures were acceptable. This Article claims the decision repudiates or should  logically  end  the  use  of  the  concept  “abusive  acquirer”.  The  term  as  defined  by  the  Tokyo High Court and others fails to produce a rationally applicable standard for courts  to  apply,  for  boards  of directors to think  about  when  facing  a  hostile  bid,  or a useful  standard  considering  shareholders’  unique  position  under  Japanese  law  in  a  takeover  contest at present. This Article also claims that the systemic result, while still unclear,  may  be  more  pro-takeover  than  the  US  managerialist  system.  The  shareholders  are  nominally  given  a  chance  to  voice  their  views  on  takeover  countermeasures  at  some  point in the process in a reasonable period of time; in contrast, the US system generally  provides  only  binding  votes  on  director  elections  as  an  indirect  means  of  voting  on  acquisitions. Whether this result will in fact be more conducive to a market for corporate  control than the US depends upon whether Japanese companies continue to be permitted  to return to significant cross-shareholdings coupled with ex ante poison pills as a nearly  impervious barrier to takeovers. Finally, this Article claims that this result is explained  best by an economic analysis including the political system as a whole and incentives  peculiar to Japan’s legal system’s path-dependent evolution to the present. Relative to  the US, Japan maintains labor law making firing relatively more difficult than in the US.  This  creates  constituencies  for  perpetuating  corporations’  existence  over  current  management control when economic times are bad. The Article discusses several other  recent significant corporate governance and takeover events in evaluating the explanatory power of various stakeholder (culturalist, managerialist) versus economic models of  behavior. It also analyzes which model of corporate governance the Bulldog case and  surrounding laws appear to adopt. The Article concludes with a proposed legal solution  to  the  possible  result  that ex  ante  poison  pills  and  a  return  to  cross-shareholding  will  stunt  Japan’s  nascent  corporate  control  market’s  growth.  Implementing  this  solution  could give Japan’s economy and Japanese companies the benefits of a more vibrant and  competitive control market than the US.