A case of purchasing shares of a Japanese company from a U.S. company

Outline of the case

Our client (a listed company) was introduced by an American M&A brokerage firm to consider the acquisition of a Japanese company’s shares (100%) held by an American company. The U.S. company was considering restructuring its global group of companies, and decided that business areas other than its core business were not strategic targets, and that it would sell all of its subsidiaries that were engaged in related businesses. The U.S. company had hired an American M&A brokerage firm to sell the subsidiaries in Europe, Asia, and Japan to the company that made the most expensive offer through a bidding process. Our client decided to participate in this bidding procedure because the target Japanese company was engaged in a business that matched our client’s core business, and the acquisition of the target company offered a significant prospect of achieving certain synergies, such as the acquisition of quality customers. Our client came to Kuribayashi Sogo Law Office for advice on how to prepare a Letter of Intent (LOI), to amend the Stock Transfer Agreement (SPA), and to review various other legal matters related to the bidding procedure.

Services provided by Kuribayashi Sogo Law Office

Regarding the bidding procedures this time, an American M&A intermediary company was in charge of the bidding procedures, and it was necessary to follow the procedures set forth by the American M&A intermediary company regarding the method and schedule of the bidding. At the request of the client, we completed the bidding application by reviewing the contents of the Letter of Intent (LOI) and preparing an English translation of the LOI. A Letter of Intent (LOI) is the equivalent of a purchase application in contract form and is not legally binding except for certain contractual provisions such as confidentiality and jurisdiction clauses. Therefore, the amount of the purchase offer is not necessarily binding, and the transaction amount may vary depending on the subsequent due diligence (legal audit of the target company) and the contractual content of the share purchase agreement (known as the SPA, an acronym for Share Purchase Agreement). However, from the perspective of the U.S. company that is the transferor, the content of the LOI (Letter of Intent) submitted by each company will be reviewed to determine which company will proceed to the second round of bidding, along with what type of company the purchasing company is (especially whether the company has the financial backing to do so). The company with the largest purchase price offer will be designated as the final candidate. Therefore, when preparing and submitting a Letter of Intent (LOI), it is necessary to provide a summary in English of what kind of company the potential buyer is, whether it has sufficient financial backing to make this acquisition, the acquisition scheme the buyer is considering, and the purchase price it is offering (it is acceptable to offer an amount in a certain range, but the offer may be considered to be the smallest in that range). In addition, since the M&A intermediary has sent the terms and conditions of the Stock Transfer Agreement (SPA), which assumes the transfer of the target company’s shares, it is normal to be asked to submit comments on the contents of the Stock Transfer Agreement (SPA) at the same time as the LOI is submitted. Since negotiations on the SPA will continue throughout the subsequent due diligence period, there will be ample opportunity to revise the SPA even if sufficient comments are not made on its contents at this stage. However, from the perspective of the other party company, it would be very important to make suggestions regarding the contents of the Stock Transfer Agreement (SPA) in order to know on what contractual terms the potential buyer is basing its price. Kuribayashi Sogo Law Office proposed to the client a general explanation of the Stock Transfer Agreement (SPA) sent by the seller and suggested amendments (contract clauses in English), and added or amended various contract clauses to the Stock Transfer Agreement in response to the client’s request. All of these contract clauses were drafted in English.

International Transaction Support by Kuribayashi Sogo Law Office

Cases where the subject company is a Japanese company

Kuribayashi Sogo Law Office has been involved in many cross-border M&A transactions. Cross-border M&A transactions involving Japanese companies often involve the transfer of shares of a Japanese company to a foreign company or the acquisition of shares of a Japanese company from a foreign company. In these M&A transactions, either the transferor or the transferee of the shares is a foreign company, and the Japanese company must negotiate a contract with the foreign company. In addition, since the M&A procedures are likely to involve international elements, it is necessary to follow generally recognized international M&A procedures. However, since the target company is a Japanese company, Japanese law will often be the governing law, and the legal audit (due diligence) of the target company will also be based on Japanese law. Therefore, an understanding of Japanese corporate law is important, and Japanese lawyers will likely play a central role in handling the case. Even when the target company of an acquisition is a Japanese company, both the seller and the buyer may be foreign companies. Kuribayashi Sogo Law Office has been involved in many M&A transactions in which both the seller and the buyer are foreign companies. Even in so-called “foreign” deals where both the seller and the buyer are foreign companies, the importance of Japanese lawyers remains the same in that it is important to check whether the procedures based on the Japanese Companies Act have been properly followed.

Cases where the subject company is a foreign company

Kuribayashi Sogo Law Office is often asked to assist in M&A transactions where the target company is a foreign company. In most cases, the target company is a foreign company, but either the buyer or the seller is a Japanese company. If the buyer is a Japanese company, the Japanese company in question can secure a base for its overseas expansion by acquiring the foreign company. The company being sold may be the owner of the local company or another Japanese company. In either case, from the perspective of the Japanese company making the purchase, this is one way to expand overseas. On the other hand, the seller company may be a Japanese company. For the seller company, the M&A of the target company may be conducted as a way to release the target company from the group from the viewpoint of group reorganization, or as a way to withdraw from overseas business since the seller company has achieved its business objectives in the overseas business.

Services offered by Kuribayashi Sogo Law Office

The procedures for cross-border M&A with an international component are no different from those for M&A in Japan. First, an offer to purchase (sometimes in the form of an LOI, sometimes in the form of a letter as a non-binding offer) is prepared in English and submitted to the M&A intermediary. Then conduct a legal audit of the target company and a thorough review of the contents of the Stock Transfer Agreement (SPA), and submit a draft of the SPA reflecting the proposed terms desired by the client. Of course, from the seller’s point of view, the seller wants to limit the scope of the warranty and representation clauses that define the seller’s liability as much as possible, and from the buyer’s point of view, since the seller does not have sufficient understanding or consideration of the target company’s contents, it is normal for the seller to want to bear the burden of any unexpected circumstances, such as the resignation of a key employee, for example, by reducing the purchase price. Therefore, it is necessary to hold repeated discussions between the seller’s representative (attorney) and the buyer’s representative (attorney) to determine how the terms of the contract should be finalized. Kuribayashi Sogo Law Office assists clients in drafting the desired contract clauses in English and finalizing them through Zoom and other discussions with attorneys representing the other party. Kuribayashi, who is admitted to practice law in the State of New York, will directly negotiate the terms of the contract, but depending on the case, he or she may participate in meetings together with a consultant (a native American attorney who is admitted to practice law in the U.S.) contracted by Kuribayashi Sogo Law Office, and will also check the terms of the contract with a native English speaker. If the target company is a Japanese company, Kuribayashi Sogo Law Office will conduct a legal audit of the target company and submit a legal audit report in either Japanese or English. For M&A involving Japanese companies, attorneys and staff of Kuribayashi Sogo Law Office will conduct a legal audit of the target company and prepare an audit report. If the target company is a foreign company, we will request a local law firm to conduct a legal audit of the target company and submit a report on the results to our client in either Japanese or English. If the target company is a foreign company, Kuribayashi will not only select and recommend a local law firm to the client, but will also supervise the local law firm throughout the entire process and provide advice to ensure that the client’s wishes are reflected. In addition, as support services at the closing, Kuribayashi Sogo Law Office will prepare and certify various documents to be submitted at the closing, and prepare the documents so that the necessary documents can be submitted to the other party in a manner that ensures that no omissions occur. At the closing, we prepare a checklist of documents to be delivered at the closing, check with representatives of both parties in advance to ensure that each document has been prepared in accordance with the contract, and prepare evidence that your company has fulfilled the terms of the contract by, for example, having a receipt prepared for each document submitted.

Legal fees for corporate acquisitions (examples)

In general, legal fees for Kuribayashi Sogo Law Office in cross-border M&A transactions are based on a time-charge system. The hourly legal fee (billable rate) for a partner attorney is 35,000 yen (excluding consumption tax), and the hourly legal fee (billable rate) for an associate attorney is 25,000 yen (excluding consumption tax). Kuribayashi Sogo Law Office prepares a monthly statement (discriptions) regarding attorney’s fees and sends the discriptions along with the amount of attorney’s fees so that the client can clearly understand the amount of attorney’s fees. In addition, if requested by the client, we often provide an estimate of attorneys’ fees in advance to provide a rough estimate. For example, 500,000 yen for preparation work related to a non-binding offer, 2,000,000 yen for preparation of an audit report of the target company, 2,000,000 yen for assistance in drafting the terms of the SPA agreement and negotiating the agreement with the other party, 1,000,000 yen for support and assistance in closing procedures, etc. However, the amount of compensation will vary depending on the size of the target company and other factors, so please contact our office individually for specific amounts.